Entrepreneurship and Small Business

International Journal of

Entrepreneurship and Small Business Volume 7, No. 4, 2009 Publisher’s website: www.inderscience.com E-mail: [email protected] ISSN (Print): 1476-1297 ISSN (Online): 1741-8054 Copyright© Inderscience Enterprises Ltd No part of this publication may be reproduced stored or transmitted in any material form or by any means (including electronic, mechanical, photocopying, recording or otherwise) without the prior written permission of the publisher, except in accordance with the provisions of the Copyright Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency Ltd or the Copyright Clearance Center Inc. Published and typeset in the UK by Inderscience Enterprises Ltd

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ENTREPRENEURSHIP AND INNOVATION

Guest Editor: Professor Vanessa Ratten A.J. Palumbo School of Business Administration Duquesne University Pittsburgh, Pennsylvania, USA E-mail: [email protected]

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Int. J. Entrepreneurship and Small Business, Vol. 7, No. 4, 2009

Contents SPECIAL ISSUE: ENTREPRENEURSHIP AND INNOVATION Guest Editor: Professor Vanessa Ratten 389

Editorial Vanessa Ratten

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Cooperation in innovation practices among firms in Portugal: do external partners stimulate innovative advances? Maria José Silva and João Leitão

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Dynamic capabilities, change and innovation in Greek SMEs: a preliminary study Apostolos Rafailidis and Giannis Tselekidis

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Entrepreneurship and innovation within creative industries: a case study on the Finnish games industry Mirva Peltoniemi

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Partnerships and innovative patterns in small and medium enterprises Elena Cefis, Mihaela Ghita and Anna Sabidussi

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Strategy and innovation: making the right strategic decision and developing the right innovative capabilities Lawrence J. Loughnane

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Entrepreneurs and branding in an environment of mass customisation and open innovation Khaled Hamid

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A comparison of spectators’ and franchise staffs’ perceptions on the effectiveness of the marketing techniques adopted by the Super Basketball League in Taiwan Steve Chen, Ronald Dick, Chie-Der Dongfang and Pi-Yun Teng

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Building a sense of community through sport programming and special events: the role of sport marketing in contributing to social capital Eric C. Schwarz

Contents Book Review 488

International Entrepreneurship in Family Businesses by J.C. Casillas, F.J. Acedo and A.M. Moreno Vanessa Ratten

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Contents Index

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Keywords Index

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Author Index

International Journal of Entrepreneurship and Small Business (IJESB) Honorary Editor-in-Chief: Professor Frank Hoy Professor of Entrepreneurship and Chair for the Study of Trade in the Americas Director, Centers for Entrepreneurial Development, Advancement, Research & Support, College of Business Administration University of Texas at El Paso, El Paso, TX 79968-0545, USA Fax: 1-915-747-8748 Associate Editors Professor Louis Jacques Filion Rogers-J.A.Bombardier Professor of Entrepreneurship, HEC Montreal 3 000 Chemin Cote Ste-Catherine, Montreal, Quebec H3T 2A7 Canada Fax: 514 340 6382 E-mail: [email protected] Professor A. Bakr Ibrahim CIBC Distinguished Professor of Entrepreneurship and Family Business Concordia University, 1455 de Maisonneuve Ouest, Montreal, Quebec, Canada E-mail: [email protected] Professor John Milton-Smith Professor of Management, Curtin University of Technology GPO Box U1987, Perth WA 6845, Australia Fax: +61 8 92667897 E-mail: [email protected] Professor Jan M. Ulijn Jean Monnet Chair of European Innovation, Entrepreneurship and Culture Eindhoven University of Technology, P.O Box 513 5600, MB Eindhoven, The Netherlands E-mail: [email protected] Regional Editors Professor Robert B. Anderson (Regional Editor for Canada) President of the CCSBE/CCPME, University of Regina, Faculty of Business Administration, Regina, Saskatchewan, Canada E-mail: [email protected] Professor Rosalind Chew (Regional Editor for Asia) Division of Economics School of Humanities and Social Sciences, Nanyang Technological University, Singapore 639798 Fax: (65) 6793-0523 E-mail: [email protected] Professor Alain Fayolle (Regional Editor for Europe) Director of Entrepreneurship Research Centre, EM Lyon and University of Pierre Mendès, CERAG, BP 47 / 38040 Grenoble Cedex 9, France E-mail: [email protected] Professor Patricia P. McDougall (Regional Editor for the USA) William L. Haeberle Professor of Entrepreneurship, Kelley School of Business Indiana University, 1309 East Tenth Street, Bloomington, IN 47405-1701, USA E-mail: [email protected] Consulting Editor: Professor Leo Paul Dana Senior Advisor, World Association for Small & Medium Enterprises University of Canterbury, Dept. of Management, Private Bag 4800, Christchurch, New Zealand

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Members of the Editorial Board Claire Auplat Tanaka Business School Imperial College London South Kensington Campus London SW7 2AZ E-mail: [email protected] Shantanu Banerjee School of Management Queensland University of Technology Gardens Point Campus, Brisbane 4001 Queensland, Australia E-mail: [email protected] Thomas Behrends Lüneburg Universität, Universitätscampus Gebäude 8, Scharnhorststraße 1 D-21335 Lüneburg, Germany E-mail: [email protected] Professor Sara Carter Department of Management and Organization University of Stirling Stirling, UK, FK9 4LA Fax +44 1786 467329 E-mail: [email protected] Julio Castro Instituto de Empresa Business School María de Molina, 11. 28006 Madrid, Spain E-mail: [email protected] Nikhil Celly Richard Ivey School of Business University of Western Ontario 1151 Richmond Street N London, Ontario, N6A 3K7, Canada E-mail: [email protected] Professor Mohammed Chowdhury Monroe College 29 East Fordham Road Department of Accounting Bronx, NY 11427, USA E-mail: [email protected] Teresa E. Dana Christchurch College of Education Christchurch, New Zealand E-mail: [email protected] Donald Feaver School of Law Queensland University of Technology Gardens Point Campus, Brisbane 4001 Queensland, Australia E-mail: [email protected] Elena Golovko IESE Business School 31080 Pamplona, Navarra, España E-mail: [email protected]

Professor Graham Hall Manchester Business School Booth Street West Manchester M15 6PB, UK E-mail: [email protected] Mary Han Program Chair, ASAC International Business Division, Program Chair ASAC Entrepreneurship Division John Dobson ACE Fellow, Ryerson University 350 Victoria Street, Toronto, Ontario Canada M5B 2K3 E-mail: [email protected] Professor Carin Holmquist Center for Entrepreneurship and Business Creation, Stockholm School of Economics, PO Box 6501, SE - 113 83 Stockholm, Sweden E-mail: [email protected] Andrew Hughes Copland Building 024 Australian National University ACT 0200, Australia E-mail: [email protected] Professor Jerome A. Katz Coleman Foundation Chair in Entrepreneurship John Cook School of Business Saint Louis University, 3674 Lindell Blvd. St. Louis MO 63108 USA Saint Louis, Missouri, USA E-mail: [email protected] Bev Kitching School of Management Queensland University of Technology Gardens Point Campus, Brisbane 4001 Queensland, Australia E-mail: [email protected] Professor Gary A. Knight Director of Multinational Business Program, College of Business, Florida State University Tallahassee, FL 32306-1110, USA E-mail: [email protected] Professor Norris Krueger, Jr. Clinical Professor of Entrepreneurship Boise State University, Boise, ID 82725, USA E-mail: [email protected] Professor Dr. Gilles Lambert Professeur des Universités IECS - Ecole de management de Strasbourg 61 avenue de la Forêt Noire 67085 Strasbourg Cedex, France E-mail: [email protected]

Members of the Editorial Board (continued) Professor Terri Lituchy Concordia University Montreal, Quebec, Canada E-mail: [email protected] Shane Matthews School of Marketing, Advertising and Public Relations Queensland University of Technology Gardens Point Campus, Brisbane 4001 Queensland, Australia E-mail: [email protected] Gerard McElwee Senior Academic Lincoln Business School University of Lincoln Lincoln, LN6 7TS, UK E-mail: [email protected] Professor Rod McNaughton Eyton Chair in Entrepreneurship Director, Institute for Innovation Research and Associate Director Centre for Business Entrepreneurship and Technology University of Waterloo Waterloo Ontario, Canada N2L 3G1 E-mail: [email protected] Professor Teresa V. Menzies Past President CCSBE/CCPME Faculty of Business Brock University Ontario, Canada L2S 3A1 E-mail: [email protected] Professor Venkataraman Nilakant University of Canterbury Private Bag 4800 Christchurch, New Zealand E-mail: [email protected] Professor Jean-Jacques Obrecht Professor Emeritus Universite Robert Schuman Strasbourg, France E-mail: [email protected] Gul Berna Ozcan School of Management Royal Holloway University of London Egham, Surrey TW20 0EX, UK E-mail: [email protected]

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Professor Rajesh K Pillania Assistant Professor Institute for Integrated Learning in Management (IILM) 3, Lodhi Road New Delhi-110003 India. Email: [email protected] Dr. Edwina Pio Faculty of Business (Management) Auckland University of Technology Private Bag 92006 Auckland 1020, New Zealand Hamish Ratten School of Law Queensland University of Technology Australia E-mail: [email protected] Vanessa Ratten A.J. Palumbo School of Business Administration Duquesne University Pittsburgh Pennsylvania, USA Email: [email protected] Lydia Schmelter School of Marketing, Advertising and Public Relations Queensland University of Technology Gardens Point Campus, Brisbane 4001 Queensland, Australia E-mail: [email protected] Professor Sören Sjölander Department of Innovation Engineering and Management Chalmers University of Technology Vera Sandbergs Allé 8B SE-412 96 Göteborg, Sweden E-mail: [email protected] Professor Martine M. Spence The University of Ottawa School of Management 136 Jean-Jacques Lussier Street Ottawa, Ontario K1N 6N5, Canada Fax: +1 613 562 5164 E-mail: [email protected] E-mail: [email protected] Professor David J. Storey Associate Dean (Research) Warwick Business School University of Warwick Coventry, CV4 7AL, UK E-mail: [email protected]

Members of the Editorial Board (continued) Charles Trappey School of Management Queensland University of Technology Gardens Point Campus, Brisbane 4001 Queensland, Australia E-mail: [email protected] Karen Verduyn Vrije Universiteit Amsterdam Karen Verduyn / room 3a-15 De Boelelaan 1105 NL-1081 HV Amsterdam The Netherlands E-mail: [email protected] Professor Claudio Vignali The ‘Arnold Ziff’ Chair in Retailing School of Tourism, Hospitality & Retailing Management Leeds Metropolitan University City Campus Leeds, LS1 3HE, UK E-mail: [email protected] Isabell Welpe Ludwig-Maximilians-Universität Klenzestr. 65, 80469 München, Germany E-mail: [email protected]

Professor Dianne H.B. Welsh Hayes Distinguished Professor of Entrepreneurship, University of North Carolina Greensboro Bryan School of Business and Economics P.O. Box 26165 Greensboro NC 27408-6165 USA [email protected] Professor Paul Westhead Professor of Entrepreneurship Institute for Enterprise and Innovation Nottingham University Business School Jubilee Campus, Wollaton Road Nottingham NG8 1BB, UK E-mail: [email protected] Professor Nicholas Maurice Young Stanford University, Stanford, California, USA E-mail: [email protected]


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Editorial Vanessa Ratten A.J. Palumbo School of Business Administration Duquesne University Pittsburgh, Pennsylvania, USA E-mail: [email protected] Biographical notes: Vanessa Ratten is an Assistant Professor at the A.J. Palumbo School of Business Administration at Duquesne University, USA. Her main research interests are international entrepreneurship, technology innovation and strategic management. She has presented and published her work in numerous peer reviewed academic journals and at professional conferences. She has published in journals including the European Journal of Innovation Management, Journal of High Technology Management Research, International Journal of Entrepreneurship and Small Business and the Asia Pacific Journal of Marketing and Logistics. She has co-edited a research book on European Entrepreneurship and is currently finishing a co-edited research book on Asian Entrepreneurship. She is currently working on research that examines the relationship between entrepreneurship and sports marketing. In particularly she is interested in the role of sustainability, corporate social responsibility and social entrepreneurship in the sports and technology industries.

This special issue is on the important topic of entrepreneurship and innovation. The first six papers are from the 2nd European Conference on Entrepreneurship and Innovation, which was held at the Utrecht School of Economics, the Netherlands, on 8–9 November 2007. The first six papers focus on a variety of issues and theories relating to entrepreneurship and innovation in the European context. The other two papers included in the special issue relate to the role of sports in entrepreneurship and innovation. Given the importance for Europe’s continued economic success on entrepreneurship and innovation, it is crucial that the issues discussed in this special issue be given attention. The papers are written by a number of authors from countries within Europe and outside Europe. Country-specific papers are included that provide an interesting contrast to entrepreneurship and innovation that is happening in different European countries. The first paper by Silva and Leitão discusses the Portugese experience of being entrepreneurial and innovative. The paper highlights the importance of the environment in influencing a firm’s entrepreneurial innovation capability. The authors confer that a firm’s external innovative partnerships are important to developing a countries entrepreneurship and innovative capabilities. The second paper by Rafailidis and Tselekidis focuses on the Greek experience of building innovation and dynamic capabilities. The authors highlight that the current fast-changing business environment necessitates a focus on innovation and entrepreneurship. The third paper by Peltoniemi presents a case study analysis of the firms within the Finnish games industry. Peltoniemi argues that innovation is a social and interactive process that encompasses a number of Copyright © 2009 Inderscience Enterprises Ltd.

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activities. The fourth paper by Cefis et al. is on the Dutch occurrence of entrepreneurship and innovation. The authors discuss the innovative characteristics of Dutch companies by comparing them to other European companies. The fifth paper by Loughnane provides a theoretical perspective and understanding about how innovation applies to businesses around the world, including Europe. Loughnane argues that innovation is a complex process that includes both upstream and downstream activities within the firms’ context. The sixth paper by Hamid also focuses more on the theoretical notion of what innovation is by discussing the environmental context of entrepreneurship. Hamid stresses that the creative process of developing products provides a platform for businesses to encourage their innovative and entrepreneurial capabilities. The paper by Chen et al. examines franchises in Taiwan basketball. The Taiwanese basketball league discussed in this paper provides a great example of the entrepreneurial nature of sports in terms of how the basketball league is continually innovating. The paper by Schwarz examines entrepreneurship in sports through a discussion on the role of communities in sports marketing. Schwarz stresses that social capital in the form of entrepreneurship and innovation is an ideal way for the sports industry to remain competitive. The book review by Ratten further examines entrepreneurship by reviewing a book on family firms, which is useful as it includes a discussion on many multinational and well known brand name firms that have started off as family run enterprises.


Cooperation in innovation practices among firms in Portugal: do external partners stimulate innovative advances? Maria José Silva* and João Leitão Management and Economics Department University of Beira Interior Pólo IV, 6200–209 Covilhã, Portugal Fax: +351.275.319.601 E-mail: [email protected] E-mail: [email protected] *Corresponding author Abstract: This paper analyses whether the entrepreneurial innovation capability of firms is stimulated through the relationship established with external partners. The literature review on innovation makes use of two approaches: (1) systemic and (2) networks and interorganisational relationships. The theoretical approach developed supports the basic idea that innovation is an evolutionary, nonlinear and interactive process established between the firm and the environment. Together with the firm’s assets, a wide range of agents contribute towards acquiring external resources, knowledge and information essential for developing productive and innovative activities. The database was obtained through the Community Innovation Survey II (CIS II) coordinated by EUROSTAT. Relationships with science partners have a crucial role in promoting cooperation in innovative practices and stimulate the propensity to make advances at the level of product innovation. Keywords: innovation; networks; entrepreneurial innovation capability; Portugal. Reference to this paper should be made as follows: Silva, M.J. and Leitão, J. (2009) ‘Cooperation in innovation practices among firms in Portugal: do external partners stimulate innovative advances?’, Int. J. Entrepreneurship and Small Business, Vol. 7, No. 4, pp.391–403. Biographical notes: Maria José Silva is an Assistant Professor at the University of Beira Interior (UBI), Covilhã, Portugal. Her academic background includes a PhD in Management, specialising in Innovation, from the UBI in 2004. She is the coordinator of the postgraduate course in Technological Entrepreneurship. She is on the editorial board of the International Review of Management and Economics and is a member of the CAIE project – the Innovation and Entrepreneurship Support Centre. She is a research fellow at ‘Núcleo de Estudos em Ciências Empresariais’ (NECE). Her expertise is in innovation and technological entrepreneurship. João Leitão is an Assistant Professor at the UBI, Covilhã, Portugal. His academic background includes a PhD in Economics, specialising in the Economics of Networks, from the UBI in 2004. He is also on several editorial boards: the International Review on Public and Non Profit Marketing, South African Journal of Information Management, The New Economics Papers (NEP) and Revista Portuguesa e Brasileira de Gestão. He is the editorial Copyright © 2009 Inderscience Enterprises Ltd.

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M.J. Silva and J. Leitão coordinator of the International Review of Management and Economics, and referee for Applied Economics, Frontiers in Finance and Economics, Small Business Economics: An Entrepreneurship Journal, Frontiers of Entrepreneurship Research, Revista Economia & Sociedade, European Marketing Academy (EMAC), Academy of Management (AOM) and Advances in Business Education & Training. His expertise is in public policies for entrepreneurship, technological marketing and the economics of sports.

1

Introduction

Due to the challenges that firms are facing, innovation is assumed to be a key factor for competitiveness. Several theoretical approaches developed in the last few years support the idea that innovation results from an evolutionary, nonlinear and interactive process between the firm and its partners, where external contacts that relate to innovation influence the firm’s innovation capability. This paper aims to analyse the nature of the relationships that are established among agents who cooperate in terms of innovation practices. Furthermore, it aims to determine if the entrepreneurial innovation capability of firms in Portugal is stimulated through the relationship established with external partners. Here, a theoretical base is presented that is founded on approaches in current literature, corroborated by empirical evidence that allows us to identify whether the innovative advances of Portuguese industrial firms are stimulated by their relationships with business and science partners. The work tests the Observatório da Ciência e da Tecnologia or OCT (Observatory of Science and Technology) hypotheses, derived from the second Community Innovation Survey (CIS II). The generalised linear regression model is applied to the data obtained, i.e., the logistic regression model. The article is structured in the following way: The second section presents relevant literature on relationships regarding innovation; the conceptual model is proposed and the hypotheses to be tested in the statistical model are formulated. Section 3 presents the sample, the variables and the logistic regression model for innovative advances. Section 4 discusses the results, while Section 5 concludes and presents policy implications.

2

Theoretical framework, hypotheses and model proposal

2.1 Literature review In this research, innovation is seen neither as something intermittent that happens by accident, nor as something that results from the action of an individual agent. Innovation is seen as the result of an interactive process between the firm and the environment (Kline and Rosenberg, 1986; Dosi et al., 1988; Lundvall, 1988; Lundvall, 1992; Nelson, 1993; Edquist, 1997; Maskell and Malmberg, 1999; Lundvall et al., 2002; Silva, 2003; Edquist, 2005; Silva et al., 2005; Leitão, 2006; Lundvall, 2007; Nieto and Santamaría, 2007). The results of this same process are designated entrepreneurial innovation capabilities. The term ‘entrepreneurial innovation capability’ was adopted to integrate the components that result from the innovative process of a firm, i.e., product

Cooperation in innovation practices among firms in Portugal

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innovation, process innovation and organisational innovation. This paper focuses on entrepreneurial innovation capability oriented to advances regarding product innovation, made by firms. Considering entrepreneurial innovation capability in terms of product innovation, two different types of innovation are distinguished: ‘new to the firm’ versus ‘new to the market’. The category of ‘new to the firm’ innovation includes modifications and improvements of the firm’s existing products, as well as the products that are new to the firm, extending or substituting certain items (Kaufmann and Tödtling, 2000). The innovation of these products consists of changes in the variety of the products, small design improvements or technical changes in one or several products, as well as the introduction of new ones. It is generally known as incremental innovation, with small technical changes that result from the global, available knowledge. The category ‘new to the market’ innovation includes products that are new to the firm and the market (Kaufmann and Tödtling, 2001). Such products offer new qualities, services or functions that up to that moment have not been available in any other marketplace. Therefore, these products do not have competing products, which leads to a temporary monopoly; they are often aimed at very specialised markets (Kaufmann and Tödtling, 2001). These innovations often require more than just incremental development, and in this way they contribute towards the development of innovative advances. Thus, it is considered that the firm produces innovative advances when it introduces a new product not only to the firm, but also to the market that is supplied by the firm (CIS II, 1999; Kaufmann and Tödtling, 2001). While analysing the resources available in this area, it was seen that there has been a growing interest in the study of external partnerships and their impact on innovation over the past few years. The network and interorganisational relationship approaches suggest that external partnerships may stimulate the innovative process of firms. According to these approaches, the external relationships established among partners are characterised by a relatively open information exchange and such an information flow may stimulate innovative activities (Hakansson, 1987; Cohen and Levinthal, 1989; Cohen and Levinthal, 1990; Porter, 1990; Hakansson and Johanson, 1992; Furman et al., 2002; Tether, 2002; Becker and Dietz, 2004; Drejer and Jørgensen, 2005; Edquist, 2005; Hessels, 2007; Lundvall, 2007; Nieto and Santamaría, 2007). Despite being derived from several theoretical approaches, this research has demonstrated considerable homogeneity in the sense that the establishment of relationships with external partners influences the innovative process. Therefore, the systemic perspective of innovation was deepened, through the consideration of organisational and environmental factors that influence innovative performance and entrepreneurial competitiveness. According to this approach, innovation originates from a collective learning process where institutions have a determinant role. Thus, innovation capability is the result of an interactive process which embraces firms and environment, by enhancing the inherent synergies of learning that belong to the economic system and by stimulating the institutions that support innovation (Lundvall, 1985; Lundvall, 1988; Lundvall, 1992; Nelson, 1993; Cooke et al., 1997; Braczyk et al., 1998; Cooke et al., 2000; Kaufmann and Tödtling, 2001; Lundvall, 2007). The systematic approach emphasises that these institutions, when connecting several agents, may play a crucial role in the creation and diffusion of innovation (Godinho, 2003). This

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approach provides a better understanding of the relationships established between firms and external partners, as well as allowing for the acknowledgement of several agents that are crucial for disseminating innovation within the system.

2.2 Model proposal For several countries, there are many studies that show the importance of external partnerships regarding improvements in the firm’s innovation capability (Fritsch and Lukas, 1999; Fritsch and Lukas, 2001; Kaufmann and Tödtling, 2000; Kaufmann and Tödtling, 2001; Bayona et al., 2001; Romijn and Albaladejo, 2002; Hagedoorn, 2002; Silva, 2003; Silva et al., 2005; Veugelers and Cassiman, 2005; Nieto and Santamaría, 2007; Schmidt, 2007). As far as the Portuguese case is concerned, the previous findings of the CISEP/GEPE (1992) study and the research conducted by Simões (1997) show the importance of external partnerships as factors influencing the performance of Portuguese firms. However, there are several issues relating to innovation that the literature so far has not covered. As a result, in this area, besides knowing who the main partners are, it is fundamental to analyse the following in order to understand the innovation process: what is the importance of the various external partners regarding the development of innovative activities and, thereby, their contribution to innovative advances? Thus, a model is proposed to analyse whether, when it comes to innovation, the relationships established with external partners stimulate firms to adopt innovative advances. The proposed model is presented in Figure 1. Figure 1

Analysis of external relationships in terms of innovative advances: proposed model

(EIC)

(IA)

2.3 Hypotheses Several studies point out that the innovation capability of firms is influenced by established partnerships with business partners, namely, client suppliers and group firms (Simões, 1997; Fritsch and Lukas, 1999; Fritsch and Lukas, 2001; Kaufmann and Tödtling, 2000; Kaufmann and Tödtling, 2001). Looking at the various types of innovation partners, and taking into consideration the data obtained through the innovation inquiry of firms (CIS II, 1999), two external partnership groups have been identified: business and science. Regarding business


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partners, two subgroups are identified: one group associated with business partners that promote cooperation, namely, clients, suppliers and other group firms, and another group of partners that do not cooperate, i.e., competitors. This group is distinguished from the others, since a relationship with it can lead to anticompetitive behaviour. In terms of science partners, there are two subgroups. The first is related to the entities that supply knowledge and training, such as universities and other higher education institutions. The second is related to the remaining partners considered in the CIS II enquiry, namely public research institutes, nonprofitable private organisations and consultancy firms. Therefore, it is intended to discover if the relationships established with clients, suppliers and group firms stimulate the firm to develop innovative advances. Thus, the following hypothesis was formulated: H1

Innovative partnerships established with clients, suppliers and group firms are positively related to the propensity of the firm to make innovative advances.

Given that firms establish partnerships with competitors that affect innovation, this research intends to test if such partnerships help firms in the creation of new products that are new not only to the firm, but also to the market. In this context, the following hypothesis was formulated: H2

Innovative partnerships established with competitors are positively related to the propensity of firms to make innovative advances.

According to the existing literature, universities assume a special role in stimulating innovative advances. For Kaufmann and Tödtling (2001), universities produce far-ranging technological developments, because they focus primarily on the creation of new knowledge regardless of economic motivations. Fritsch and Schwirten (1999) also refer to the fact that universities and other institutions of higher education have input into the private sector’s innovative activities. Taking these facts into consideration, the following hypothesis was formulated: H3

Firms that establish an innovative partnership with universities and other institutions of higher education are more able to make innovative advances.

Partnerships with consultancy firms, and with private and public research institutions, focus essentially on the production of scientific and technological knowledge that will be promptly commercialised (Kaufmann and Tödtling, 2001). The relationship with this type of institution is based on the demand for alternative sources of information and knowledge for innovation. In this way, these institutions supply scientific and technological knowledge. However, it is more common to supply applied knowledge, specific skills and information (Bruce and Morris, 1998; Tether, 2002; Becker and Dietz, 2004). In order to find out if partnerships with these entities stimulate innovative advances, the following hypothesis was formulated: H4

Innovative partnerships established with consultancy firms and governmental and private institutions are positively related to the propensity of firms to make innovative advances.

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The fourth hypothesis aims to determine whether innovative relationships established with partners significantly influence the innovation capability of Portuguese industrial firms at the product innovation level.

3

Research methodology

After proposing the analytical model and the hypotheses to be tested, the research methodology was subsequently developed through the presentation of the population, the sample and the variables to be used in the estimation of logistic regression.

3.1 Population and sample The data used in this study were collected by the OCT in Portugal. The data were collected during the second semester of 1998, through CIS II questionnire. The surveyed year was 1997 and there were a great many indicators relating to the period from 1995 to 1997. This questionnaire was conducted under the supervision of EUROSTAT and following the guidelines of the Oslo Manual (OECD, 1997; OECD, 2005). The population includes all industrial firms in Portugal with more than 20 employees. The codes of industrial activities under analysis are based on the European NACE (Classification of Economic Activities in the European Community), and are the following: 15 to 37 and 40 to 41 respectively. The initial sample of 1556 industrial firms was extracted from the 9284 firms that make up the population. The number of firms that answered the questionnaire in a valid way, following the guidelines defined by EUROSTAT, was 819 industrial firms, which thus constituted the final sample, and represented an answer rate of 57.3%. Since this study focuses on the entrepreneurial innovation capability of the firms, in terms of innovative advances in products, we considered all 193 firms that undertook product innovation from 1995 to 1997.

3.2 Data The firms were classified as ‘innovative to the market’ if they answered the fifth point of the questionnaire positively, and were classified as ‘innovative to the firm’ if their answer was negative. Firms were asked whether “from 1995 to 1997, the company introduced technologically new or improved products which were new both to the firm and to the market served by that firm” (CIS II, 1999, p.4). The sample has 193 product-innovative industrial firms, which were classified according to their degree of innovativeness. Ninety of these firms (47%) stated that they had introduced new products into the market from 1995 to 1997. The remaining firms, i.e., 103 (53%), introduced innovations in products that were new to the firm, but not to the market. The two types of innovation present several differences that should be mentioned (Figure 2). The firms that have attained incremental innovations (new to the firm) present, as main partners, research institutions and consultancy firms (38.2%), followed by the business partners: clients, suppliers and group firms (30.9%). Regarding the firms that have developed products that constitute radical innovations that are new to the firm and to the market, the main relationships are established with clients, suppliers and group firms (40.6%), followed by universities and other higher education institutions (31.2%).

Cooperation in innovation practices among firms in Portugal Figure 2

397

Distribution of firms by external innovative partnerships (see online version for colours)

100% 90%

Clients, suppliers and group firms

31%

80%

41%

70% 60%

25%

Universities and OHEI

50%

31%

40% 30% 38%

20%

Research institutions and consultancy firms

10%

27%

5%

0%

firm NovoNew paratoathe empresa

New para to theo market Novo mercado

For testing the previously formulated theoretical hypotheses, we considered several dichotomous variables that are presented in Table 1. Table 1

Variables of the model and hypotheses

Model I

Code

Measures

Dependent variable

INA

Binary

Innovative advances

1 = New to the market 0 = New to the firm

Independent variables Relationships established with clients, suppliers and group firms

RE1

1 = Firm has established at least one relationship with clients or suppliers or group firms 0 = Firm has not established any relationship

Relationships established with competitors

RE2

1 = Firm has established at least one relationship with competitors 0 = Firm has not established any relationship

Relationships established with universities and OHEI

RE3

Relationships established with research institutions and consultancy firms

RE4

1 = Firm has established at least one relationship with universities or OHEI 0 = Firm has not established any relationship 1 = Firm has established at least one relationship with state or private research institutions or with consultancy firms 0 = Firm has not established any relationship

398


3.3 Method: logistic regression According to that which has been previously defined, the Innovative Advances (INA) variable is binary, which assumes a value equal to 1, if the firm has developed product innovations that are new to the market, or a value equal to 0, if the firm has developed product innovations that are new only to the firm. The binary data are very common among the several types of categorical data and their modelling is part of the linear regression models category (McCullagh and Nelder, 1989). The logistic regression model is the most common one (Agresti, 1996; Ferrão, 2003), in terms of the way it facilitates the substantive interpretation of parameters. Thus, logit regression is an approach used in studies of innovation capability factors (Kaufmann and Tödtling, 2000; Kaufmann and Tödtling, 2001; Silva, 2003; Silva et al., 2005). In this sense, a logistic regression model for innovative advances is proposed, using dichotomic independent variables, where ε i represents the residual term. The estimation process is based on the maximum likelihood procedure and takes into consideration the following model specification: INAi = β0 + β1Re1 + β2Re2 + β3Re3 + β4Re4 + εi

(1)

where: INA = innovative advances Re1 = relationships established with clients, suppliers and group firms Re2 = relationships established with competitors Re3 = relationships established with universities and other higher education institutions Re4 = relationships established with research institutions and consultancy firms

εi = error term.

4

Results and discussion

According to the Wald statistics, the results of logistics regression reveal that all the estimators of the regression parameters are statistically significant up to 5%, except for the relationships established with competitors. The estimators of the final model are presented in Table 2. The first hypothesis is concerned with the association between the capacity of the firm to develop innovative advances and the variable that relates to relationships with business partners. The results suggest that the relationships established with these partners have positive and significant effects on the innovative advances made by the firm, as indicated by the positive estimator of the parameter (0.797). As we analyse the marginal effects associated with the variable being studied here, we see that firms which establish relationships have an advantage of 2.219 when it comes to developing innovative advances, compared to the firms that do not establish these relationships. Therefore, the firms that connect with clients, suppliers and/or group firms are more able to innovate than firms that have not established this kind of relationship. This ratifies the results obtained by other authors, such as Fritsch and Lukas (1999; 2001) and Kaufmann and Tödtling (2000; 2001).

Cooperation in innovation practices among firms in Portugal Table 2

399

Results of the logistic regression for innovative advances

Model

Parameter estimator

SE

Wald

Sig.

EXP (B)

0.797

0.405

3.865

0.049*

2.219

Relationships established with Clients, suppliers and group’s firms Competitors Universities and OHEI Research institutions and consultancy firms Constant

–1.485

1.248

1.415

0.234

0.226

1.243

0.575

4.669

0.031*

3.467

–1.112

0.554

4.034

0.045*

0.329

–0.281

0.173

2.638

0.104

0.755

Model summary Correct predict (%) Chi-square Log likelihood

Number of cases (n) Note:

60.1 11.318

0.023

255.361

193

* Significance level: 5%.

Regarding the second hypothesis, and according to the results obtained, nothing can be concluded about this relationship, since the variable associated with this kind of relationship is not statistically significant. Hence, the null hypothesis stating that there is no connection between the relationships established with competitors and the propensity of the firm to make innovative advances is neither accepted nor rejected. These facts are possibly due to the reduced number of cases associated with the variable. Concerning the third hypothesis, according to the results, relationships with universities and other higher education institutions have positive and significant effects on the propensity of the firm to make innovative advances. These results are in line with the empirical investigations led by Fritsch and Schwirten (1999), Kaufmann and Tödtling (2001) and Tether (2002). It should be mentioned that the success rating of the firm in developing innovative advances in this context is 3.467. In other words, firms that establish relationships with universities and other higher education institutions have an innovation capability that is 3.467 greater than those that do not establish such relationships. As the marginal effects value of the several variables are analysed, it is noted that the variable associated with the relationships established with universities and other higher education institutions has the highest value. Thus, it can be stated that the innovative advances undertaken by the firms are also a product of the relationships that they establish with universities and other higher education institutions. Regarding the fourth hypothesis, the results obtained are quite significant, meaning that the null hypothesis stating that there is no association between the established relationships and the propensity of the firm to make innovative advances may be rejected. Thus, there is a connection, but this connection has a negative sign, as the coefficient estimation (–1.112) indicates. Consequently, the propensity of the firm to develop innovative advances is negatively correlated with the establishment of such relationships. These results suggest that establishing relationships with consultancy firms, governmental and private research institutions maximises the propensity of the firm to develop incremental innovations rather than innovative advances.

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The predictive capacity of the model is 60.1%, which results from the comparison between the predicted and the observed values of the variable answer. The value of the Chi-square test statistic is 11.318, with a proof value inferior to the 0.05 significance level. The log-likelihood statistic, 255.361, also corroborates the global significance of the model, when compared with the null model.

5

Conclusions

This study aimed to analyse whether entrepreneurial innovation capability in terms of innovative advances is stimulated by the relationships established between firms and their business and science partners. To achieve this aim, a conceptual model was presented, a model supported by evidence that allowed the formulated hypotheses to be tested. Throughout the study, the factors included in the proposed conceptual model were empirically contrasted, according to the CIS II data. The results indicate that firms that establish relationships with business partners – clients, suppliers and group firms – are more capable of developing innovative advances than firms that do not establish such relationships. Concerning relationships with competitors regarding innovation, there is nothing to be concluded in a statistically significant way. This is possibly due to the reduced number of firms that establish relationships with this type of external partner. Therefore, it can be concluded that the vertical relationships established with business partners stimulate the development of innovative capability, as far as innovative advances are concerned. Regarding science partners, the results reveal that the development of innovative advances made by firms is stimulated more through cooperation with universities than with the remaining science partners. This is probably due to the innovative capability of universities, which generate new knowledge regardless of economic motivations. This exact same knowledge might have a wide range of business applications, allowing it to be used to create additional innovations, whereas studies carried out by research institutions depend more on economic factors, focusing on Research and Development (R&D) that is rapidly commercialised. As we analyse each type of relationship, we notice that the external relationships established with business partners and with universities influence the firm to make innovative advances. This positive influence has a greater importance when it comes to establishing relationships with universities and other higher education institutions. In turn, the relationships that are established with research institutions and consultancy firms do not motivate firms to undertake innovative advances. Instead, a negative statistically significant relationship between these two variables is observed. Therefore, relationships with this type of entity promote the introduction of incremental innovations, which are new to the firm but not to the market. Overall, it is possible to conclude that establishing relationships that affect innovation with external partners influences entrepreneurial innovation capability, in terms not only of innovative advances, but also of incremental innovations. In terms of policy implications resulting from the present study, it should be stressed that public policies oriented towards the creation of open innovation networks are needed. For assuring the success of open innovation networks, entrepreneurs and


401

industrial or commercial associations should participate as consulting staff in universities, in order to promote the equilibrium between the demand ‘pull’ and the supply ‘push’ for innovation, in a more efficient way. The main limitation of this study is the lack of data on innovative firms, especially in relation to the CIS, i.e., several innovative firms may not be included in this work. This limitation means it is not possible to develop comparative analyses on the nature of the relationships established between these firms and their private and public partners. Furthermore, only data from a sample of Portuguese innovative firms are used, a selection that should be expanded in future research. Future research should be developed on the motivation of firms for engaging in cooperative innovation projects. Firms’ characteristics, both general and regarding innovation activities, which influence firms’ motivations for cooperating should be analysed. Similarly, new research could examine whether public funding leads firms to cooperate in order to access external knowledge and R&D. A further line of pursuit for the current research would be to repeat the approach used in this paper, using the data from CIS III and CIS IV, as a means of obtaining information that would allow the evaluation of evolutionary patterns. In this context, it is considered that the expansion of this research into several European Union countries, as well as others that have answered the CIS questionnaire, may contribute to the development of future studies on cooperative open innovation networks, using a cross-country approach.

References Agresti, A. (1996) An Introduction to Categorical Data Analysis, New York: John Wiley & Sons. Bayona, C., Garcia-Marco, T. and Huerta, E. (2001) ‘Firm’s motivations for cooperative R&D: an empirical analysis of Spanish firms’, Research Policy, Amsterdam, Vol. 30, pp.1289–1307. Becker, W. and Dietz, J. (2004) ‘R&D cooperation and innovation activities of firms – evidence for the German manufacturing industry’, Research Policy, Vol. 33, pp.209–223. Braczyk, H., Cooke, P. and Heidenreich, R. (1998) Regional Innovation Systems, London: UCL Press. Bruce, M. and Morris, B. (1998) ‘In house, out-sourced or a mixed approach to design’, in M. Bruce and B. Jevnaker (Eds.) Management of Design Alliances: Sustaining Competitive Advantage, Chichester: Wiley. CIS II (1999) Segundo Inquérito Comunitário às Actividades de Inovação, Observatório das Ciências e Tecnologias, Ministério da Ciência e da Tecnologia, Lisboa. CISEP/GEPE (1992) Inovação Indústria Portuguesa – Observatório M.I.E., Lisboa: GEPE. Cohen, W. and Levinthal, D. (1989) ‘Innovation and learning: the two faces of R&D – implications for the analysis of R&D investment’, Economic Journal, Vol. 99, pp.569–596. Cohen, W. and Levinthal, D. (1990) ‘Absorptive capacity: a new perspective on learning and innovation’, Administrative Science Quarterly, Vol. 35, March, pp.128–152. Cooke, P., Boekholt, P. and Tödtling, F. (2000) The Governance of Innovation in Europe: Regional Perspectives on Global Competitiveness, London: Pinter. Cooke, P., Uranga, M. and Etxebarria, G. (1997) ‘Regional innovation systems: institutional and organisational dimensions’, Research Policy, December, Vol. 26, Nos. 4–5, pp.475–491. Dosi, G., Freeman, C., Nelson, R., Silverberg, G. and Soete, L. (1988) Technical Change and Economic Theory, London: Pinter. Drejer, I. and Jørgensen, B. (2005) ‘The dynamic creation of knowledge: analysing public–private collaborations’, Technovation, Vol. 25, pp.83–94.

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Edquist, C. (1997) ‘Systems of innovation approaches – their emergence and characteristics’, in C. Edquist (Ed.) Systems of Innovation: Technologies, Institutions and Organizations, Chap. 1, London: Pinter, pp.1–35. Edquist, C. (2005) ‘Systems of innovation: perspectives and challenges’, in J. Fagerberg, D. Mowery and R. Nelson (Eds.) The Oxford Handbook of Innovation, Oxford University Press. Ferrão, M. (2003) Introdução aos modelos de regressão multinível em educação, Campinas: Komedi. Fritsch, M. and Lukas, R. (1999) ‘Innovation, cooperation, and the region’, in B. David, A. Thurik and R. Thurik (Eds.) Innovation, Industry Evolution and Employment, Cambridge, UK: Cambridge University Press, pp.157–181. Fritsch, M. and Lukas, R. (2001) ‘Co-operation in regional innovation systems’, Regional Studies, Vol. 35, No. 4, pp.297–307. Fritsch, M. and Schwirten, C. (1999) ‘Enterprise-university co-operation and the role of public research institutions in regional innovation systems’, Industry and Innovation, June, Vol. 6, No. 1, pp.69–83. Furman, J., Porter, M. and Stern, S. (2002) ‘The determinants of national innovative capacity’, Research Policy, Vol. 31, pp.899–933. Godinho, M. (2003) ‘Inovação: Conceitos e Perspectivas Fundamentais’, in M. Rodrigues, A. Neves and M. Godinho (Orgs.) Para uma Política de Inovação em Portugal, Dom Quixote, Lisboa: Biblioteca de Economia & Empresa, pp.29–51. Hagedoorn, J. (2002) ‘Inter-firm R&D partnerships: an overview of major trends and patterns since 1960’, Research Policy, Vol. 31, pp.477–492. Hakansson, H. (1987) Industrial Technology Development – A Network Approach, London: Croom Helm. Hakansson, H. and Johanson, J. (1992) ‘A model of industrial networks’, in B. Axelsson and G. Easton (Eds.) Industrial Networks – A New View of Reality, London: Routledge, pp.28–36. Hessels, S. (2007) ‘Innovation and international involvement of Dutch SMEs’, Int. J. Entrepreneurship and Small Business, Vol. 4, No. 3, pp.234–255. Kaufmann, A. and Tödtling, F. (2000) ‘Systems of innovation in traditional industrial regions: the case of Styria in a comparative perspective’, Regional Studies, Vol. 34, No. 1, pp.29–40. Kaufmann, A. and Tödtling, F. (2001) ‘Science-industry interaction in the process of innovation: the importance of boundary-crossing between systems’, Research Policy, Vol. 30, pp.791–804. Kline, S.J. and Rosenberg, N. (1986) ‘An overview of innovation’, in R. Laudau and N. Rosenberg (Eds.) The Positive Sum Strategy: Harnessing Technology for Economic Growth, Washington: National Academy Press, pp.275–306. Leitão, J. (2006) ‘Open innovation clusters: the case of Cova da Beira Region (Portugal)’, Conference Proceedings of ISBE 2006, Cardiff. Lundvall, B-A. (1985) ‘Product innovation and user-producer interaction’, Industrial Research, Series No. 31, Aalborg: Aalborg University Press. Lundvall, B-A. (1988) ‘Innovation as an interactive process: from user-producer interaction to the national system of innovation’, in G. Dosi, C. Freeman, R. Nelson, G. Silverberg and L. Soete (Eds.) Technical Change and Economic Theory, Chap. 17, London: Pinter, pp.349–369. Lundvall, B-A. (1992) National Systems of Innovation: Towards a Theory of Innovation and Interactive Learning, London: Pinter. Lundvall, B-A. (2007) ‘National innovation systems – analytical concept and development tool’, Industry and Innovation, Vol. 14, No. 1, pp.95–119. Lundvall, B-A., Johnson, B., Andersen, E. and Dalum, B. (2002) ‘National systems of production, innovation and competence building’, Research Policy, Vol. 31, pp.213–231.


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Dynamic capabilities, change and innovation in Greek SMEs: a preliminary study Apostolos Rafailidis* Department of Business Planning and Information Systems Technological Education Institute of Patras M. Aleksandrou 1, Koukouli, 263 34, Patras, Greece E-mail: [email protected] *Corresponding author

Giannis Tselekidis Archimidous 60, 173 43, Athens, Greece E-mail: [email protected] Abstract: International competition is increasingly making firms enter a process of change and transformation. The dynamic capabilities approach is relevant in examining this change and has thus attracted considerable attention. In the current business environment, change (especially innovation) is essential for pursuing the creation of strategic competitiveness. It is the creation and development of suitable dynamic capabilities, however, that may actually enable or induce innovativeness. This paper is an attempt to review relevant existing theory, so as to locate possible commonalities of the dynamic capabilities of differing firms. Second, through ongoing empirical research, the paper draws on data from a sample of Greek SMEs. The paper examines dynamic capabilities in relation to innovativeness. Any relationship between dynamic capabilities and firm performance is considered indirect, with the intermediate step being efforts for change and innovation. In this way, the tautology pointed out in the literature between dynamic capabilities and competitive advantage is bypassed. Keywords: dynamic capabilities; innovation; change; factors; Greece; SMEs; commonalities. Reference to this paper should be made as follows: Rafailidis, A. and Tselekidis, G. (2009) ‘Dynamic capabilities, change and innovation in Greek SMEs: a preliminary study’, Int. J. Entrepreneurship and Small Business, Vol. 7, No. 4, pp.404–419. Biographical notes: Dr. Apostolos Rafailidis is an Assistant Professor at the Department of Business Planning and Information Systems of the Technological Education Institute of Patras, Greece. He mainly works in the fields of technology and innovation management, organisational learning, change management, interfirm technological cooperation and defence economics from an industry perspective. His work has been published in journals and conferences, as well as in international and Greek books. He has also worked as an Assistant Professor at the Department of Finance and Auditing of the Technological Education Institute of Epirus, Greece, as a Researcher for the Universities of Patras, Athens and Piraeus, for the National

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Dynamic capabilities, change and innovation in Greek SMEs

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Center for Social Research, for the Hellenic Foundation for European & Foreign Policy, and as a consultant for the Ministry of Defense and for the Science Park of Patras. Dr. Giannis Tselekidis is an Economist. He holds a PhD on Interfirm Technology Transfer and Knowledge Assimilation Issues. His current position is with the Greek Ombudsman, while in the past he has worked as a Lecturer at the Department of Business Administration of the University of Patras, Greece. Microeconomics, knowledge management, and research and development management were the main courses he taught. His work has been published in international journals and conference proceedings. His research mainly focuses on knowledge management, on interfirm cooperation strategy and on the development of dynamic capabilities.

1

Introduction

The 1990s have seen a great increase in the pressure for organisations to continuously adapt, innovate and change. A close reading of the Fortune 500 reveals an attrition rate of 7% per year. It seems that there are two kinds of firms – those that are changing and those that are going out of business. The dynamic capabilities theory is an attempt to explain how some firms survive and create and maintain competitive advantages in this rapidly evolving environment. Despite the potential of the dynamic capabilities approach, it is argued that the approach is conceptually vague and that it suffers from lack of operationalisation. There is a lack of clarity about the nature of dynamic capabilities and disagreement about whether such capabilities even exist (Winter, 2003). Thus, an attempt to conceptualise dynamic capabilities more clearly and to operationalise them is deemed useful. Dynamic capabilities have also been criticised for the lack of empirical grounding (Priem and Butler, 2001) because the majority of empirical research concerns qualitative case studies. In addition, the mechanisms through which dynamic capabilities are related to the creation and maintenance of competitive advantage remain unclear (Zott, 2003; Zollo and Winter, 2002), and the approach has been criticised for being tautologically linked to performance (Williamson, 1999). To approach these issues, in Section 2 this paper first attempts to analyse and define dynamic capabilities. Then, a model is proposed to identify the mechanisms related to dynamic capabilities and an attempt is made to answer the tautology argument mentioned above. Then, based on the proposed model, the authors present in Section 3 some preliminary results of an ongoing empirical research effort concerning a sample of Greek firms. Section 4 presents the conclusions and implications for academics and practitioners, as well as the proposed future research.

2

The concept of dynamic capabilities and enabling mechanisms

The concept of dynamic capabilities is characterised by conceptual ambiguity. Teece et al. (1997, p.516) defined dynamic capabilities as “the firm’s ability to integrate, build and reconfigure internal and external competencies to address rapidly

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changing environments”. More recent research involving dynamic capabilities has not managed to clarify things (e.g., Woiceshyn and Daellenbach, 2005; George, 2005; Figueiredo, 2003). Zollo and Winter (2002, p.340) defined dynamic capabilities as “a learned pattern of collective activity through which the organisation systematically generates and modifies its operational routines in pursuit of improved effectiveness”. In our view, this is the most complete definition of dynamic capabilities. As Zollo and Winter noted, their definition avoids the tautology of defining capability as an ability. In addition, the fact that dynamic capabilities are a ‘learned pattern of collective activity’ that functions systematically means they are recurrent, and thus conscious. This way, they can relate explicitly dynamic capabilities with the theory of organisational learning. This is a pivotal point in their approach. The question that remains, however, is why organisations are differentiated with regard to their collective learned activity pattern. That is, what is the cause driving some firms to promote such activity more and better than others? Before an attempt is made to answer this question, a distinction between resources, routines and dynamic capabilities is useful. According to Sharif and Ramanathan (1987), the basic resources of a firm can be classified into four categories: 1

technoware, which comprises physical facilities (manufacturing, tools, machines, infrastructure, etc.)

2

humanware, which includes skills, experience, creativity, etc., embodied in humans

3

infoware, comprising of documents, manuals, specifications, theories, design parameters, etc.

4

orgaware, which includes, organisational schemes-designs such as methods, techniques, networks, managerial practice and firm culture.

Routines are stable patterns of behaviour that characterise organisational reactions to variegated, internal or external stimuli. They are the combination and interaction of the aforementioned resources and the various subnetworks formed by combining or crossing the basic resources (Argote and Ingram, 2000), through the routines that produce the firm’s products and services and define its inner functions and value chain. Moreover, routines can be further distinguished as operational (when they involve the execution of known procedures) and search routines (when they seek to identify the necessary changes to an existing set of production routines) (Nelson and Winter, 1982). Routines of the latter type are a central constituent of dynamic capability (Zollo and Winter, 2002). In addition, many firms are characterised by asymmetries (Miller, 2003) or imbalances (Rafailidis and Tselekidis, 2002) in the resources they possess. By asymmetries or imbalances we mean that some of the resources and assets of a particular firm are more developed in comparison with the rest of the resources and assets of the same firm, and competitors are not able to imitate at a cost affording economic rents. Asymmetries certainly do exist when comparing resources and assets between firms. In the theory of dynamic capabilities, organisational knowledge and human capital play a cardinal role as intangible drivers to reconfiguration (Galunic and Rodan, 1998). For this reason, firms with dynamic capabilities frequently show asymmetries in humanware and orgaware. However, the existence of asymmetries is necessary but not sufficient for a firm to develop dynamic capabilities. They have to be complemented with


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the development of the rest of the resources and assets. Organisational design can play a key role in this and it includes the way a firm organises, controls and motivates its resources to perform the most critical tasks. It includes formal aspects such as policies, priorities and structure, and informal aspects such as values, beliefs and styles of interaction (Miller, 2003, p.968). Let us return to the question posed: why are organisations differentiated with regard to their collective learned activity pattern? Part of the answer may lie with the behavioural attitude of the firm to be aware of these imbalances, as well as its willingness to act constantly in order to build upon them. Equally important is the effort to develop complementary resources and assets to support the main ones. The search for asymmetries is informed by thorough and persistent inquiry across the breadth of an organisation and its markets. The search evaluates how asymmetries might be connected to other organisational assets or resources to create value. This process requires collective action and ongoing dialogue within an organisation (articulation of knowledge) to examine resources and structures that are important at each point in time. This search process creates the conditions for the creation of new routines and organisational structures. This is the reason why such imbalances can be characterised as positive (Rafailidis and Tselekidis, 2002). In our view, this analysis complements the definition of Zollo and Winter (2002) on dynamic capabilities, since it is organisational learning oriented and it explains why some firms more strongly show a learned pattern of collective activity, through which they systematically generate and modify their operational routines in pursuit of improved effectiveness. In addition, the paths of dynamic capabilities may be specific to the firms or the industries, but at a more generic level, we concur with Eisenhardt and Martin (2000) that the common characteristics of dynamic capabilities across firms are identifiable and that dynamic capabilities demonstrate the nature of commonalities in key features. To this end, we have attempted to identify and describe the main enabling organisational mechanisms of dynamic capabilities.

2.1 Absorptive capability The concept of absorptive capability was coined by Penrose (1959) and was later developed by Cohen and Levinthal (1990). The latter authors argue that a necessary condition for a given firm’s successful exploitation of new knowledge outside its own boundaries is the development within the firm of the capability to assimilate new information. This capability depends, in part, on the capability of a firm to recognise and relate new knowledge to existing in-house expertise. The latter capability, in turn, is a function of the firm’s level of prior related knowledge. Dietrickx and Cool (1989) argue that firms with significant R&D know-how are frequently better able to exploit and further develop technologies, compared to firms with lower R&D know-how. Arora and Gambardella (1994) have shown that firms in the biotechnology sector are differentiated in their capability to benefit from cooperation with universities and small research-intensive firms. This capability was shown to depend on the number of scientific papers published by the personnel of each firm, on patents and on R&D expenditures. A number of more recent studies, such as the one by Tsai (2001), have used R&D intensity as a proxy for absorptive capability.

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Diversity of knowledge is closely related to absorptive capability. “A diverse background provides a more robust basis for learning because it increases the prospect that incoming information will relate to what is already known” (Cohen and Levinthal, 1990, p.129). Thus, the capability to absorb and learn is a function of the richness of existing knowledge. Equally as important as the diversity of knowledge is the depth of the firm’s existing knowledge structure. The combination of depth and breadth of the existing knowledge structure is expected to have a positive effect on the capability to assimilate and to use extrafirm knowledge. On the theoretical level, Zahra and George (2002) have discussed and developed the concept of absorptive capabilities. They argue that there are four dimensions that comprise the potential and realised absorptive capabilities. For Zahra and George, firms need to manage these dimensions in order to perform better. Thus, firms focusing on the acquisition and assimilation of new external knowledge (potential absorptive capability) are able to continually renew intrafirm knowledge but may face cost issues if they do not also manage to exploit this new knowledge. Conversely, firms mainly focusing on transformation and exploitation (realised absorptive capability) may realise short-term profit but might face difficulty with dealing with the need to continually renew knowledge. Thus, such firms might have difficulty to follow changes in their operating environment. By examining the four dimensions proposed, one may understand better how absorptive capability can be developed and why some firms find it hard to manage. To Zahra and George, absorptive capability is a multifaceted variable directly related to firm processes and routines. It is a capability related to a series of activities, starting from the recognition and evaluation of extrafirm information and knowledge, and finishing with the transformation of these to useful and tangible results. In this way, the authors have redefined the concept of absorptive capability and related it with dynamic capabilities. Any shortage may have significant repercussions and consequently firms need to manage a balance between exploration and exploitation, as known to the knowledge management literature. However, to the best of the knowledge of the authors of the present paper, there are as yet no empirical studies using and validating the multifaceted variable of absorptive capability as proposed by Zahra and George. The only known exception is research by Jansen et al. (2005) at the unit, and not the firm, level. This research has identified and confirmed the differential effects for potential and realised absorptive capacities. It has also shown that particular organisational mechanisms are related to the two components of absorptive capability and have to be expressly taken into account. Concluding, absorptive capability constitutes an important factor for the creation of new capabilities, through the assimilation and internalisation of new knowledge. This new knowledge may drive successful change and innovation efforts.

2.2 Market-customer-oriented capability There is no consensus regarding the definition of ‘market orientation’. Two recent definitions are being widely used, however. The first is the definition by Kohli and Jarowski (1990), who wrote that market orientation is the organisation-wide generation of market intelligence pertaining to the current and future needs of customers, dissemination


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of intelligence horizontally and vertically within the organisation, and organisation-wide action or responsiveness to market intelligence. Similar definitions can be found in Deng and Dart (1994). The second definition is by Narver and Slater (1990), who define market orientation as a one-dimensional construct consisting of three behavioural components and two decision criteria: customer orientation, competitor orientation, interfunctional coordination, a long-term focus and a profit objective. Market orientation is an integral part of organisational learning, while it helps in timely adaptation to environmental change and in the alignment of intrafirm resources with extrafirm demand (Alvarez and Merino, 2003). At the empirical level, it has been shown that there is a positive relationship of market orientation with innovation efforts, as well as with firm performance itself. Narver and Slater (1990) find that market orientation and business performance are strongly correlated. Jarowski and Kohli (1993) report that market orientation is an important determinant of performance, regardless of market and technological turbulence and competitive intensity. Greenly (1995) found that a group of companies with higher market orientation performed better than did a group with lower market orientation. Bontis (1998) has shown that market orientation, as an integral part of a firm’s intellectual capital, is positively and statistically significantly related to business performance. Biemans and Harmsen (1995), doing a survey of other research efforts, came to the conclusion that market orientation in product development is a very important factor for the success of new products. A similar finding came up in the empirical study of Athuahene-Gima (1995) in a sample of Australian firms. In a seminal work, von Hippel (1988) argues that cooperation and communication between users and suppliers of technology are of utmost importance for successful innovation. It is not infrequent for equipment-technology users to spot potential improvements and report them back to their suppliers. A fundamental element of this crucial and interactive relationship between users and suppliers is the long-term cooperation between them, so as to develop the level of trust necessary to exchange critical information and knowledge. Teece et al. (1997) related dynamic capabilities to market orientation, when they noted that the capability to create the conditions for change and adjustment is connected to the capability to scan the environment, to evaluate markets and competitors, and to reconfigure and transform faster than the latter. Thus, market orientation capability (through market intelligence) is an important factor for the development of new capabilities that can, in turn, lead to potentially more successful efforts for change and innovation.

2.3 Organisational learning capability Cangelosi and Dill (1965) were the first to distinguish between three levels of organisational learning: individual, group and organisational. Individual learning is embedded in the context of group learning, which in turn is embedded in the context of organisational learning (Crossan and Inkpen, 1995). It is a prerequisite for organisational learning (Kim, 1993) and it occurs simply by virtue of being human. Organisations learn because individuals learn (McGee and Prusak, 1993), but individual learning does not necessarily lead to organisational learning (Senge, 1990). Group-level learning is considered as an intermediate level between individual and organisational levels.

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Group knowledge is not just the sum of the knowledge of the individuals in the group (Cohen and Levinthal, 1990). The knowledge of individuals needs to be shared and legitimised through interactions and information technology before it can become group knowledge. Learning at the organisational level starts once groups integrate their own respective learning. This approach to learning accentuates the importance of organisational systems, structures, procedures, culture, etc. As Nonaka and Takeuchi (1995) note, the creation of organisational knowledge has to be understood as a process of expanding and widening the knowledge created by individuals and reflected to group level through discussion, dialogue, experience sharing and observation. As Barnett (1999) argues, organisational knowledge is an experience-based process, through which cause and effect are codified into routines and organisational memory, and is reflected in the change in collective behaviour. Thus, organisations learn through useful prior experience; and the greater the availability of such experience, the greater the probability to learn using it. The product of this process is the change of organisational knowledge structures which deal with goal, cause-and-effect beliefs, etc. (Lyles and Scwenk, 1992). In addition, organisations represent patterns of interaction among individuals and therefore learning in organisations depends, to a large extent, on the ability to share common understandings so as to exploit them (Daft and Weick, 1984). Thus, dominating factors in the quest for organisational learning are the capabilities for the creation, acquisition, retention and dissemination of knowledge. These capabilities depend on the organisational mechanisms to support their creation, such as cross-functional teams (Gupta and Govindarajan, 2000; Cohen and Levinthal, 1990), encouragement of individuals to participate and share ideas (Sheremata, 2000), institutionalisation and codification of new knowledge and best practices (Zollo and Winter, 2002; Lin and Germain, 2003) and knowledge sharing (Sethi et al., 2001; Schultz, 2001). The creation of knowledge at the individual level is to be expected, regardless of organisational settings. However, it is the integration of the knowledge of individuals with that of groups and organisations that differentiates firms as to their capability to achieve learning and create knowledge. Even when high levels of individual knowledge have been achieved, this knowledge still has to be integrated to a higher, collective level (Orlikowski, 2002; Okhuynsen and Eisenhardt, 2002). The latter argument is also true for the dynamic capabilities theory. Zollo and Winter (2002) define dynamic capabilities as a collective activity and emphasise the importance of deliberate learning mechanisms (specifically organisational routines and knowledge accumulation, articulation and codification) in their development. Henderson and Clark (1990) argue that knowledge integration helps to implement the new architectural innovations by developing the patterns of interaction. Summarising, organisational learning capability helps firms develop new capabilities that can lead to more successful efforts for change and innovation.

2.4 Human resources management capability Human capital is a profit lever of the knowledge-based economy. An organisation’s members possess individual tacit knowledge (Nelson and Winter, 1982). Human capital is important because it is a source of innovation and strategic renewal, whether it is from brainstorming in a research lab, reengineering new processes or improving personal


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skills. Wright et al. (1994), working from a resource-based perspective, argue that in certain circumstances, sustained competitive advantage can accrue from ‘a pool of human capital’. This is achieved through the human capital-adding value, being unique, imperfectly imitable and not substitutable with another resource by competing firms (Storey, 1995), and can be used as a basis and as an aid to implement strategies that can create competitive advantage (Hitt et al., 2001). Thus, firms create value through their selection, development and use of human capital (Lepak and Snell, 1999). For this reason, human capital is also a primary component of the intellectual capital construct (e.g., Bontis, 1999; Bontis, 2002; Edvinson, 2002) in the intellectual capital theory literature. Consequently, HRM systems can facilitate the development and utilisation of organisational capabilities (Lado and Wilson, 1994) and constitute a significant factor for firm competitiveness. The focus of most research in strategic human resource management has been on large firms, but a growing body of literature that targets small firms provides additional insight. There has been research focusing on innovative SMEs that studied the relationship between human resource practices and firm performance. SMEs typically face resource constraints that limit strategic and operational choices. So, in order to compete in the modern international and innovation-based environment, SMEs need to have highly motivated and skilled workers (Holt, 1993). Deshpande and Gohlar (1994) argue that workforce characteristics, such as personal interest in the firm’s success and worker self-discipline, are key elements for the success of an SME. McEvoy (1984) found that the lack of progressive human resource management practices was the main reason for the failure of the SMEs studied. In addition, it has been argued that the various HRM practices of a firm have to be integrated (Wright and Snell, 1991), that is, well designed and complementing each other. Baron and Kreps (1999) argue that there has to be consistency between a firm’s various HRP practices, so as to support organisational learning. Several empirical studies have looked at the effects of individual work practices, such as profit sharing or training (Bartel, 1995). However, it is the existence of complementarities between the HRM practices that is the most important factor for increasing productivity and firm performance. This is because of the interaction effects between the various HRM practices. For example, Milgrom and Roberts (1995) argue that productivity improvement teams are more effective when the firm also uses complementary practices like employment security, skills training, flexible job assignments and communication procedures. Ichniowski et al. (1997), in their empirical study, found that there is a positive and statistically significant relationship between productivity and a set of innovative work practices that complemented each other. Summarising, HRM capabilities help firms develop new capabilities that can lead to more successful efforts for change and innovation.

2.5 Change management capability By change we mean any alteration of the status quo. By organisational change, we mean a change made at the organisational level, i.e., affecting a whole organisation. Change can be reactive or planned (Bartol and Martin, 1998). Reactive change occurs when one takes action in response to perceived problems, threats or opportunities. On the other hand, planned (or proactive) change involves actions based on a carefully through-out process that anticipates future difficulties, threats and opportunities. Firms possessing

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strong dynamic capabilities are frequently able to bring about planned change (Teece et al., 1997), as they have procedures encouraging personnel to analyse, criticise and question the status quo (Gibson and Brikinshaw, 2004; Beer, 2001). Such firms also have the capability to actually continually pursue the realisation of the above-mentioned encouragement procedures. All kinds of change can be categorised in terms of their significance to the organisation and the appropriate level of intervention required. There are, according to Thompson (2003), six levels of change that form a vertical hierarchy, from the easiest to the hardest: 1

changing functional strategies

2

changing business processes

3

changing competitive strategies, systems and management roles

4

changing the very structure of the organisation

5

changing corporate strategy and finally

6

changing the organisational values.

Whatever the change, resistance is always expected. Thus, the implementation of change requires careful planning and the needs of employees need to be thoroughly considered (Kotter and Schlesinger, 1979). Kotter and Cohen (2002) argued that what a firm needs to actually manage and change when trying to implement changes is the behaviour embedded in personnel. To this end, he proposed a tightly knit eight-step process to effect change: Step 1

Increasing urgency. In successful change efforts, the first step is making sufficient people act with sufficient urgency, a behaviour that looks for opportunities and problems, and that energises colleagues.

Step 2

Building the guiding team. With the feeling of urgency established, it is easier to put together the right group of people to guide change and to create essential teamwork within the group.

Step 3

Getting the right vision. The guiding team that was formed has to pose and answer some questions to produce a clear sense of direction. For example, what change is needed? What is their vision for the organisation?

Step 4

Communicating for buy-in. In successful change efforts, the vision, strategy and direction of change is widely communicated for both understanding and gut-level buy-in.

Step 5

Empowering action. In successful change efforts, when people begin to understand and act on a change vision, the guiding team has to remove barriers in their paths.

Step 6

Creating short-term wins. In successful change, empowered people create short-term wins. Without sufficient wins that are visible, timely, unambiguous and meaningful to others, change efforts run into serious problems.


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Step 7

Not letting-up. After the first short-term win, the change effort will have direction and momentum. People build on this momentum to make a vision a reality by keeping urgency up and a feeling of false pride down.

Step 8

Making change stick. Tradition is a powerful force and leaps into the future can slide back into the past. Change is kept in place by helping to create a new, supportive and sufficiently strong organisational climate.

Summarising, change management capabilities help firms develop new capabilities that can lead to successful efforts for change and innovation. In our model, we believe that the mechanisms described are very important for the development of dynamic capabilities. The five factors are correlated but conceptually distinct, while dynamic capabilities are an unobservable construct defined by a set of these five enabling mechanisms (constructs). The effect of dynamic capabilities on firm performance is indirect and presents itself through successful change and innovation efforts that can eventually lead to competitive advantage. In this way, one can bypass the tautology described by Williamson (1999), since innovativeness is now in between dynamic capabilities and firm performance.

3

Empirical research and results

In this section of the paper we present some preliminary results of an ongoing empirical study. As the sample is still relatively small, we cannot statistically test the arguments described using structural equation modelling. Instead, we examine relationships between (1) the enabling mechanisms of dynamic capabilities and (2) innovativeness and change capability. We will examine whether these five constructs (absorptive capability, market-customer oriented capability, organisational learning capability, human resource management capability and change management capability), used as independent variables, can help explain the results of the change efforts of Greek SMEs. The sample consists of Greek SMEs (up to 250 employees) active in four industrial sectors: metal products, machines and machinery, electric and electronic devices and, finally, electric and electronic appliances. These sectors were selected because they are technologically more active than more traditional ones and because they produce products that are more or less used as inputs for all other sectors. The firms that constituted the sample were located mainly with the use of ICAP (a private firm collecting statistical data) lists, but with help from science parks and business innovation centres. In the lists of ICAP we put special emphasis on firms with balance sheets with research and development expenses and with records for technology property rights, because these were the factors most likely to signify change efforts. All firms were asked to describe specific change and innovation efforts (product, process, administrative or other efforts large enough to have long-term consequences) that either succeeded or failed.

414


Up to this point, we have interviewed 37 firms. The questionnaire mostly consists of closed questions – statements using a five-grade Likert scale (variables and items used are not presented due to space restrictions, but are available upon request). In order to pursue maximum unbiasedness, firms were assured that their names would remain with us, while they would receive an executive summary of the findings. The choice of live interviews with firms was preferred despite the high cost and time constraints, because they allow a much deeper query process. The presence of the researcher drives firms to be extra careful in answering questions and results in better and more usable and useful results, when compared to mailing questionnaires, for example. The dependent variable is success in change and innovation efforts (product, process, administrative or other efforts large enough to have long-term consequences), as defined by the ratio of successful to total number of each firm’s efforts. Independent variables are: •

absorptive capability (X1)

•

market-customer-oriented capability (X2)

•

organisational learning capability (X3)

•

human resource management capability (X4)

•

change management capability (X5).

In order to examine whether the various dimensions of each construct created are consistent (i.e., that they are indeed dimensions of the same variable), we used the Cronbach’s Alpha index. In all cases, the values returned were above 0.7, which was empirically used as a cut-off point. In order to investigate the differentiation among firms in the success of their change and innovation efforts, we used the nonparametric Kolmogorov-Smirnov Z test. The test was run for two independent samples, with the grouping variable being the dependent one. In order to group the dependent variable ‘ratio of success in change and innovation’ into two categories, we used the value 1 in cases where the variable had a value above the sample mean (success), and 0 for the rest of the cases (failure). The results of the Kolmogorov-Smirnov Z test are shown in Table 1. As a reminder, the hypothesis made in Section 2 was that all five enabling mechanisms – the variables for dynamic capabilities – were expected to be positively related to success in change and innovation efforts. The results of our preliminary statistical testing show that, apart from change management capability (X5), all other variables are positively related to successful change and innovation efforts for our sample of firms. The unexpected result for the importance of the change management capability might be attributed to our as yet small sample of firms. In addition, as all sample firms are SMEs, they are by definition more flexible in relation to larger firms and, thus, there are more intense personal relationships, with information being diffused perhaps more easily. Third, change management is mainly related to the last and most applied stage of any attempted change. In this stage, management may act in a more authoritative way.

Dynamic capabilities, change and innovation in Greek SMEs Table 1

415

Nonparametric Kolmogorov-Smirnov Z Most extreme differences

Variables X1

Absolute

Positive

Negative

KolmogorovSmirnov Z

Asymp sig. (2-tailed)

Exact sig. (2-tailed)

Point probability

0.514

0.000

–0.514

1.551

0.016

0.003

0.000

0.449

0.095

–0.449

1.354

0.051

0.020

0.002

0.639

0.000

–0.639

1.928

0.001

0.000

0.000

0.416

0.080

–0.416

1.255

0.085

0.046

0.005

0.333

0.053

–0.333

1.004

0.265

0.124

0.005

Absorptive capability X2 Market-customer oriented capability X3 Organisational learning capability X4 Human resource management capability X5 Change management capability

4

Conclusions

The purpose of this paper has been to contribute to the conceptualisation of dynamic capabilities, building on the definition by Zollo and Winter (2002). We have attempted to define commonalities of dynamic capabilities across firms by examining the relations between enabling mechanisms – factors and dynamic capabilities – and by developing a multidimensional construct of dynamic capabilities. We have argued that dynamic capabilities are an unobservable construct, a latent variable expressed and manifested through the mechanisms described. Another argument was that in between dynamic capabilities on the one hand, and competitive advantage on the other, there are change and innovation efforts. Market dynamism was also taken into account, as more turbulence makes dynamic capabilities more valuable. Through this logic, a model was developed that is measurable, is operational and bypasses the tautology between dynamic capabilities and competitive advantage. Lastly, we experimented with the direct relationship that may exist between enabling mechanisms on the one hand, and change and innovativeness on the other. The statistical part of the research is only preliminary, as we do not have all the data necessary to check the model with the latent construct of dynamic capabilities and the other proposed variables. It is our belief that future research can continue to study the concept of dynamic capabilities and to build more robust models that may allow a cross-comparison of research findings within similar and between different contexts (e.g., industrial,

416


national). Especially, market dynamism should be an integral part of a future model, as more turbulence makes dynamic capabilities even more valuable (Eisenhardt and Martin, 2000). For practitioners, the determination and measurement of enabling mechanisms may be of use in monitoring and controlling, as well as for benchmarking.

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Entrepreneurship and innovation within creative industries: a case study on the Finnish games industry Mirva Peltoniemi Institute of Business Information Management Tampere University of Technology P.O. Box 541, FI-3101 Tampere, Finland E-mail: [email protected] Abstract: This paper explores entrepreneurship within the Finnish games industry. This topic is approached with the evolutionary framework where the entrepreneur is the driving force creating variation by introducing new firms and new products. Within such a creative industry, most employees provide entrepreneurial services in terms of creating novelty, introducing new ideas and participating in deciding which ideas to follow. This means that entrepreneurship is a social and interactive process which entails both bargaining and learning. However, the space in which each employee may practise his/her discretion is limited and it seems that doing this allocation well is a crucial condition for the success of the firm. The direction of the firm emerges from the interaction of managers and workers. Keywords: entrepreneurship; innovation; search; games industry; creative industries; evolutionary theory. Reference to this paper should be made as follows: Peltoniemi, M. (2009) ‘Entrepreneurship and innovation within creative industries: a case study on the Finnish games industry’, Int. J. Entrepreneurship and Small Business, Vol. 7, No. 4, pp.420–430. Biographical notes: Mirva Peltoniemi has an MSc (Engineering) from Tampere University of Technology where she is currently working as a Researcher and writing a doctoral thesis on the evolutionary mechanisms of the Finnish games industry.

1

Introduction

During the last decade there have been several publications on cultural or creative industries. The terms ‘creative’ and ‘cultural’ have been used somewhat interchangeably in this context (see, e.g., Bilton and Leary, 2002, p.49) and similar characteristics have been attached to both. The industries that are included under this umbrella are, according to Hesmondhalgh (2002, p.12), the television, radio, cinema, newspaper, magazine and book publishing, music recording and publishing, advertising, the performing arts, and video and computer games, whereas the list by Power and Scott (2004) is somewhat shorter, including music, electronic games, television, fashion and media. An older list can be found in Hirsch (1972, p.642), including movies, plays, books, art prints, phonograph records and pro football games. Copyright © 2009 Inderscience Enterprises Ltd.

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The purpose of this paper is to explore entrepreneurship, meaning entries and search processes, within the Finnish games industry. This means answering the following questions: •

How were the firms founded?

•

How do the firms innovate?

•

How do the managers and workers interact?

The games industry is just one of the creative or cultural industries and thus the findings presented in this paper cannot be generalised directly to other such industries. However, we think that the games industry is a good example as it is truly international, growing significantly and with content creation done in firms as opposed to individual artists creating content (examples of which would be novels, music and movie scripts). This paper concentrates on the innovation processes in the game development companies. This means that the interest is in the small firms that create game content in the hopes of getting a publishing deal with a game publisher. This structure, of large companies selecting which ideas produced by the small companies or artists get to be taken further, is common to most creative/cultural industries. “From a universe of innovations proposed by ‘artists’ in the ‘creative’ (technical) subsystem, they select (‘discover’) a sample of cultural products for organisational sponsorship and promotion” (Hirsch, 1972, p.644). The interaction of managers and workers is interesting because usually it is not the CEO who comes up with the idea for the new innovative game and who would then make the idea flow down in the organisation. It is assumed that the process has both top-down and bottom-up effects. Bilton and Leary (2002) state that within the creative industries, managers are manipulating and exploiting ideas just like the artistic workers, and their task is to create “a space within which individual talents, experiences and perceptions can collide in interesting ways” (p.61).

2

Theoretical background

In this section we shall look through some literature on entrepreneurship from the theory of the firm perspective. Penrose (1995) makes a distinction between entrepreneurial and non-entrepreneurial services. The entrepreneurial services consist of the introduction and acceptance of new ideas. Such search activities are performed because the entrepreneur believes that possible avenues for profitable expansion are likely to be found or that expansion is necessary to be competitive. According to Schumpeter (1951), the main task of the entrepreneur is to carry out new combinations. This is done constantly because the source of the entrepreneurial profit may not be long-lasting and this means that the business conception changes constantly. Casson (1982, p.23) defines entrepreneur as someone who “specializes in taking judgemental decisions about the coordination of scarce resources”. Casson points out that even though everyone is involved in taking such judgemental decisions at some point, the entrepreneur is a specialist in it and takes decisions on behalf of other people as well. The coordination of scarce resources refers to improving the situation by making changes in what the firm puts its resources into. This needs to be done as long as there is

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new information becoming available that makes the current allocation of resources appear inefficient (p.25). This definition of an entrepreneur rests heavily on the function of decision making. Another view on entrepreneurship can be found in Metcalfe (2006). According to him, an entrepreneur is someone who changes the rules of the game. Thus, just starting a business is not an entrepreneurial activity as long as the business is replicating existing businesses. Entrepreneurs make conjectures that consist of both knowledge and beliefs. These conjectures are tested by exposing them to the market and then either confirmed or falsified. According to Witt (1998), an entrepreneurial undertaking consists of: •

people taking the entrepreneurial positions

•

people taking the non-entrepreneurial positions

•

the business conception that is to be followed

•

the mechanisms that transmit the conception created by the entrepreneurs to the employees.

He states that the last one is the especially tricky part. On the other hand, Cyert and March (1992) claim that such a transmission does not really take place. They state that organisational goals are the result of a continuous bargaining-learning process. This is because the goals are often vague and there may be several goals simultaneously. A fundamental property of an entrepreneur is the ability to convincingly answer the question, ‘What are we trying to do here?’ This entails imagination, as the entrepreneur has to be able to make assessments over things that do not yet exist. It also entails intuition, as decisions have to be made with imperfect knowledge. The social aspect of communicating the goals and getting employees to follow them is also crucial. Finally, having the courage to venture into the unknown and tolerating uncertainty and constant change are essential for an entrepreneur. The division of firm personnel into entrepreneurial and non-entrepreneurial positions is somewhat problematic. It is agreed that the entrepreneur is the leader and the employees are the followers. The entrepreneur is in charge of coming up with new ideas and making decisions on which ones to implement. Thus, the entrepreneur is in charge of creating novelty. The employees, however, have some kind of area of discretion, as the plans of the entrepreneur are not perfectly detailed. In addition, in many lines of business the employees are expected to be creative and come up with new ideas. With this in mind we shall move into the case study findings on the nature of entrepreneurship within the Finnish games industry.

3

Case study findings

The data for the case study were collected by interviewing the representatives (CEO, MD or equivalent) of eight firms and some information of each firm is presented in Table 1. The firms have been chosen to represent the industry as a whole and thus these firms are of different sizes, ages, platform strategies and positions within the value chain. Section 3.1 concentrates on the founding of the firms and the early stages following it, Section 3.2 on innovation in existing firms and Section 3.3 on the roles of managers and workers.

Founded

2004

2002

2000

1999

2000

2002

1995

1995

Firm

Alpha

Beta

Gamma

Delta

Epsilon

Zeta

Eta

Theta

13

25

9

170

100

24

Console, PC

Console, PC

PC, online

Online, mobile, handheld, console

Mobile

Mobile

Mobile

Mobile

X

X

Subcontractor

X

X

X

X

X

X

X

X

Developer

X

X

X

X

We want to do games

More advanced mobile phones need more advanced games. Exit. Passion We want to do cool things We want to explore the applicability of our idea It is possible to make a living out of this

Three young men working in ICT

One man with a vision

Two friends Two friends with an idea

Six friends with common interests

Combination of two existing teams

It is our dream to do games

Six guys with games, Boyish ambition to animation and coding show off as hobbies

We can do it better than others. There is money to be made

Why?

Two colleagues from an existing games firm

Publisher Who?

Founding of the firm

Publishing deal

Idea development


First project

Garage

Complementing fields of know-how to get revenue


Game engine

Founding of the firm as business potential was discovered

Demo

Original games

Subcontracting

Games to verify technology

Technology

Customers

Content

Technology

External financing

Recruiting

Business plan

How?

Table 1

27

35

Employees Platform

Entrepreneurship and innovation within creative industries 423

Information on the firms and their early phases

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A case study is defined as an empirical inquiry that investigates a contemporary phenomenon in its real-life context, the boundaries of which are not clearly evident (Yin, 1994, pp.13–14). In addition, a case study deals with a situation where there are many more variables under interest than there are data points (Yin, 1994). The phenomenon under study has many more variables than data points, which makes the case study a suitable approach. In fact, there is only one data point, i.e., the games industry in Finland, whereas the number of interesting variables is vast.

3.1 The birth of new firms Table 1 synthesises the early phases of the firms. The table includes information on who founded the firm, what was their motivation and what were the first stages in the process. The founders of the firms can be roughly divided into three different groups. We call the first group ‘kids’ and it covers the firms Delta, Zeta and Eta. The common denominator is that the founders were very young, mostly teenagers or university students. The driving force seems to have been that they had nothing to lose. The founders had a vision of what they wanted to do and how that would generate revenue. However, that vision was quite blurry and was iterated several times before the business started to pick up. And not all of these firms are there yet. For Delta, the main motivation in the beginning was to do something fun and there were not too many business considerations. However, as the realities of the business sank in, they became willing to do things that are less ‘cool’. During this process they were able to formulate their strategy and that is to do products instead of subcontracting. The firm Zeta started from a different direction, namely from the game engine. They had quite a bold vision early on, but they did not really have an understanding of all the challenges. This led to a significant change in strategy to subcontracting in the hopes of financing the development of original titles through income generated that way. The third firm of this group, Eta, is perhaps the most classic entrepreneurial story, as a garage is the scene of the main events. There were several people with common interests and they developed ideas in a self-organising fashion, as no one had a clear vision of what this group should head towards. As they tried out several things, they were able to formulate a direction based on feedback on those trials. The second group is called ‘insiders’ and it covers the firms Alpha, Beta and Theta. The founders of these firms have had experience within the games industry or within related industries, and they had quite a good grasp of the nature of the business from the beginning. Within this group, quitting the previous job is quite clearly the point in time when they became entrepreneurs. They wanted to do the same things as they were doing previously, but in a different and better way. Alpha could be defined as a spin-off of an older firm and the central motivation was to do things better. This is quite in contrast to the firm Beta, which was founded by three young men working in ICT, thus having knowledge and understanding of the underlying technologies and their potential, who wanted to start earning a living by doing games. Alpha had a business vision and Beta a technological vision that they could not follow in their previous jobs. On the other hand, Theta was born as a result of combining two existing teams. There the motivation was to join forces to be stronger and to have the ability to do larger projects.


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The third group is called ‘visionaries’ and it includes the firms Gamma and Epsilon. Within both of these firms, there was a clear vision from the start, either a product or a service, that the business has concentrated on. This also means that as attention is drawn solely to the product or service, other parts of the firm may have been left with inadequate attention. Within the firm Epsilon, the vision was strong enough to carry them through the initial difficulties. Gamma has not been as lucky as it has had to iterate its focus to survive. Many interviewees stated that the typical way to start a game firm is by building on a specific idea for a game and that their firm is a rare exception in that sense. Only one of these firms claims to have done it this way. It seems that the mainstream way to start a games firm is to have some kind of understanding or experience of what they are trying to do and then start probing for what would actually generate revenue. As the firm found a short-term revenue strategy, they started to think about a long-term one. However, the long-term strategy is something that requires investments and some kind of ability to bear the risks involved. For this reason, the short-term strategy has had to be kept alive until a sufficient base in terms of money, contacts and employees has been acquired. This kind of ‘crunch period’ is visible in the histories of all the firms. However, the length and nature of the period varies between the firms. The crunch period sometimes lasts only a few months, but after several years some firms are still struggling. It is typical to do subcontracting and to simultaneously develop original projects to the demo stage. However, if the demo does not sell the firm is back to square one. It seems that the main difficulty for these entrepreneurs has not been in communicating the goals to the employees, but in finding a match between their goals and what they can persuade consumers or publishers to buy. The business conception has mostly been quite broad and flexible and there have been constant search efforts to find a profitable area on which to focus which would enable the firm to overcome the crunch period. In most firms the founding of the firm has essentially been a social process. There were several people giving their input and some ideas were eliminated and some implemented, although they may have been iterated several times. Thus the entrepreneurial team has been a more common actor than the heroic entrepreneur.

3.2 The innovation process In the beginning there has to be an idea of what the game would be like and what it would be composed of. Most firms stressed that they want everyone to produce such ideas and present them informally. The expectation of ideas from everyone working in the firm basically went without saying. It seemed to be a standard practice of the industry. Some interviewees stated that that is the reason why people work within the industry; if they did not have such a desire and ability to come up with new things they would be doing some other kind of software: “We of course have a process on how an individual can give ideas. Quite many people have such job descriptions that they better come with ideas if they want to keep on working here.” (Epsilon)

However, this production of ideas is not completely free of boundaries as most firms have either a more strict or a more loose focus on what kinds of games they do. This can be about the content; some firms do only car games or only action games, for example. Another limiting factor is technology. This means that the kinds of ideas are preferred that can be supported by the existing technology base of the firm.

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Another interesting aspect of the idea production process is that the ideas of some people are appreciated more than those of other people. The biggest responsibility for idea development is usually on the game designer or producer. There is the assumption that these people have a more advanced ability to estimate the customer response or assess the feasibility of the idea. Basically, those ideas get more attention in the decision-making process and it is thus more probable that they will be developed further: “Every one gives ideas but only a few people give good ideas. Those are the people who can see the product development cycle all the way to the end or at least some part of it so that they can see where it is going and where it could go.” (Eta) “You can build it in many different ways. It is possible that one person has quite an advanced vision on what the game is to be like. Small things and influences come from others.” (Beta)

Furthermore, in addition to the master idea there is room and need for many smaller ideas, especially in larger console and PC games. Such a game can include hundreds of details that complement the general idea of the game. The high concept of the game defines the general direction and the small ideas bring flesh to the bones: “The high concept defines it so that it goes approximately west and then there is a lot of room for different kinds of flowers to flourish as long as the general direction is correct. Individual ideas come from anyone and some of those are accepted and may even as such become a part of the finished game and then a part of the ideas are changed and iterated first. If you have an idea related to gameplay for example like what could happen in the game then usually those are presented informally in the office corridor or somewhere.” (Eta)

The decision on which high concepts to start developing is usually done by the board of the firm. Some smaller firms referred to weekly meetings with all the employees where such decisions are made. It is a decision that is done by a group of people and several aspects are taken into account. Also, some firms ask the opinions of their publishers or operators before making a decision on their own. Producing ideas and deciding whether to implement them is a constant process in a game firm. However, it is not just a straightforward string of decisions followed by implementations since during the process new information concerning the feasibility, business potential and the fit between the idea and firm strategy is received and earlier decisions are adjusted. This is well expressed in the following comment: “Game projects are quite inexplicable and irrational because as we start doing a game it is never strictly specified and in any case some mechanisms of the game will change on the fly as the game designer says that this idea was good on paper but it doesn’t work. And as the process goes through the milestones then the customer might come up with requests for additional features. So game projects are lively things and it is interesting to balance it all. Specifications change but the deadline and the budget must hold.” (Gamma)

This means that the game firms undertake search activities continuously. They may be triggered by a specific problem, such as “What kind of an enemy should the hero face at level three?” But there is also the constant problem: “What should we do to justify our existence in the market?” Basically, this justification follows from doing something different or doing something better. The task of the firm could be defined as the search for a feasible and commercially interesting novelty in the space of digital entertainment.


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3.3 The roles of management and workers There is no universal organisational structure that each game firm should follow, but a suggested general construction is presented in Figure 1. Figure 1

Roles and tasks in game development

Management

Licensed IP

Theme

Deadline

Budget

Ideas

Art/Creative

Financial

The game

Sales and marketing

General

Interface between management and workers

Guidelines

Art story

Game parts

Game designer

Producer

Ideas

Budget deadline

Workers Graphics/ Art

Coding/ Technology

Sound, etc.

Basically, each firm has at least one person responsible for the management of the firm. Depending of the size of the firm, different management areas are separated for different people to take care of. The management level is in charge of many tasks from day-to-day housekeeping to the long-term strategy of the firm. They take part in making decisions on which games to start developing and how much resources can be allocated to each project, but not in decisions on any details inside the game. Between the management and the workers are the producer and the game designer. Usually, the producer is in charge of the project management, including budget and deadline. The game designer is in charge of the content. This usually translates into some kind of tension between the two as the game designer wants to include many good ideas into the game while the producer has limited resources and time to make it happen. On the other hand, in smaller firms these can be the same person and in larger game projects there can be several of both:

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M. Peltoniemi “The role of the producer is quite complex in that sense that his responsibility is to keep the game project in schedule but also that it is of good quality. If games are developed in-house and there is a game designer and producer in the team then they are in a battle of wills. Game designer says that I want this and this and this and the producer says that you can’t have them. Then there is arm wrestling over what is so important that it is included even though it would entail risking the deadline.” (Gamma)

The workers each have a specific area to focus on. However, they may have quite a large area of discretion as specifications may be quite vague. Also, they usually make quite a lot of suggestions, and alarm the producer or game designer if they think that something is not going to work. Even though the workers are expected to be creative and have problem-solving skills, they still have boundaries within which to work. This is a matter of productivity as well as of limiting the stress put on each employee. However, it is a double-ended sword as there is a fine line between too many and too few boundaries when it comes to creative employees: “We have to focus their thinking so that we say that these kinds of things, concentrate on these. But there is quite a lot of room to move around. For a creative person you have to allow that. If you don’t then there is no output and they will leave to work somewhere else.” (Gamma)

No matter what kind of hierarchy is described on the organisational chart, there is usually an ongoing debate inside the firm on what kinds of things they could and should do. In some smaller firms some decisions may be done through voting. As firms grow they may move on to votes where some are more equal than others. After that the next step is defining who is responsible for what and has the power to decide on those matters: “We have very strong personalities and they have opinions independent of expertise. Consensus is prevalent but it isn’t automatic. To get the people to accept the direction of the firm or the project requires discussions. In a perfect world every one would have the same goals but in reality you have to create the will to go to that direction and to allocate efforts to the right things. People who have come to work here and stayed have had the preference to do these kinds of things and in this environment. There is a lot of that but there is no stereotypic or one shared vision even about the game project if everyone could make the decision.” (Eta)

If entrepreneurship is defined as the introduction and acceptance of new ideas, then most people within a game firm take part in entrepreneurial tasks. Ideas are introduced by basically everyone and they are expected to do that. Formal decisions on what to do are confined to the territory of a limited set of people from the management, producer and designer functions. On the one hand, the deciding bodies limit idea production by focusing the workers’ efforts on certain areas, and on the other hand, the workers producing ideas limit the set of alternatives with their personal preferences and talents. This would lead to the conclusion that in the context of the Finnish games firms, entrepreneurship is a social process and it entails both bargaining and learning. Decisions are made based on arguments that may be somewhat objective but often are subjective views. Those decisions are adjusted and iterated as more of such arguments become available. Even though decisions on which game concepts to develop are usually made by a limited number of people from the management functions, the decisions are very much influenced by the information that workers give on the feasibility, originality and market potential of the game. Managers choose the focus of the firm, but that decision is


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influenced by what the workers are capable of doing. Furthermore, the workers develop their expertise through projects that the firm undertakes and that creates a path-dependent behaviour, as some directions become more favourable for the firm based on acquired expertise. The accumulation of technical and other expertise interacts with perceived market potential. In this way expertise is developed in areas with good market potential, while on the other hand, market potential is searched predominantly in areas that can be supported by the workers’ expertise. As time passes this process constructs the future of the firm.

4

Conclusions

The findings from the Finnish games industry indicate that people taking care of different kinds of tasks within a firm conduct different kinds of search activities. The space where they search has different dimensions. The task of management is to narrow down the space within which each employee should conduct search activities. The purpose of control mechanisms, such as budgeting and definition of responsibilities, is to keep people within acceptable alternatives. The latitude of each person in the firm is dependent on his/her position, seniority and personal characteristics. This latitude is defined by the management but it is also a matter of taking up space. This means both the direction of the search and the size of the area of discretion. Basically some people are more equal than others even though there are no strict hierarchies. It seems that the fundamental condition for the success of a game firm is to allocate the search space appropriately, giving on the one hand sufficient freedom for creative people and on the other hand, sufficient guidance to focus the efforts. However, this is not a matter of dictation but of dialogue. Most of what the firms within the games industry do can be defined as searching, which is fundamentally an entrepreneurial function. This means that most employees of a firm undertake entrepreneurial tasks. Searching is social and interactive as the directions where to commit search efforts and the size and location of the allowed space for each employee is continuously adjusted in a process that entails both learning and bargaining. The description of entrepreneurial activities by Penrose (1995) as introducing and accepting ideas would here mean that most employees perform such activities. Equally, the search for new opportunities (Schumpeter, 1951) is something that practically everyone takes part in. However, Metcalfe’s (2006) definition of entrepreneurship as changing the rules of the game does not really fit here as none of these firms have created anything fundamentally different in terms of their business models. The transmission of the business conception to employees (Witt, 1998) is not a problem here. Instead, the idea of the learning-bargaining process by Cyert and March (1992) is quite an accurate description of the entrepreneurial activity in these firms. Casson’s (1982) definition of the entrepreneur through specialisation to decision making is not that easily translated to the context of the games industry, as people specialise in decision making to different degrees. Thus, it appears that the difference between entrepreneurs and nonentrepreneurs is more accurately put as a difference in degree than as a dichotomy. This study indicates that in order for novelty to be created, there has to be both divergence and convergence within the firm. Even though managers and workers take different roles in this process, they both contribute to each of these. On the one hand, managers create convergence by limiting the space where each employee may practise

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searching. On the other hand, they create divergence by directing the search efforts to new areas. Employees create divergence by introducing ideas and convergence by offering a limited set of alternatives, and limited information on each, for the managers to choose from. It would be a harsh simplification to define an entrepreneur as the person who specialises in decision making and who thus makes the decisions for other people. The findings from this study indicate that there are different kinds of decisions that are all important for the direction of the firm. The management-level people contribute mostly to decisions on the search for funding, internationalisation, marketing, distribution channels and partners. The employees contribute mainly to decisions on game content and technology. Basically, the employees decide what to sell and the managers decide how to sell it. Different kinds of entrepreneurial discretions are required in these roles. They make their decisions guided by feedback processes between the focus of the firm, the skills of the people and the observed market potential.

References Bilton, C. and Leary, R. (2002) ‘What can managers do for creativity? Brokering creativity in the creative industries’, International Journal of Cultural Policy, Vol. 8, No. 1, pp.49–64. Casson, M.C. (1982) The Entrepreneur: An Economic Theory, Oxford: Martin Robertson & Company, Ltd. Cyert, R.M. and March, J.G. (1992) A Behavioral Theory of the Firm, 2nd ed., Blackwell Publishing. Hesmondhalgh, D. (2002) The Cultural Industries, SAGE Publications. Hirsch, P.M. (1972) ‘Processing fads and fashions: an organization-set analysis of cultural industry systems’, The American Journal of Sociology, Vol. 77, No. 4, pp.639–659. Metcalfe, J.S. (2006) ‘Entrepreneurship: an evolutionary perspective’, in M. Casson, B. Yeung, A. Basu and N. Wadeson (Eds.) The Oxford Handbook of Entrepreneurship, Oxford University Press, pp.59–90. Penrose, E. (1995) The Theory of the Growth of the Firm, Oxford University Press. Power, D. and Scott, A.J. (Eds.) (2004) Cultural Industries and the Production of Culture, Routledge. Schumpeter, J.A. (1951) The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle, Cambridge, MA: Harvard University Press. Witt, U. (1998) ‘Imagination and leadership – the neglected dimension of an evolutionary theory of the firm’, Journal of Economic Behavior & Organization, Vol. 35, pp.161–177. Yin, R.K. (1994) Case Study Research: Design and Methods, SAGE Publications.


Partnerships and innovative patterns in small and medium enterprises Elena Cefis* University of Bergamo, Italy and T.C. Koopmans Research Institute Utrecht School of Economics Utrecht University Janskerkhof 12, 3512 BL Utrecht, The Netherlands E-mail: [email protected] *Corresponding author

Mihaela Ghita Department of Accounting and Finance University of Antwerp Stad Campus – SB.312 Prinsstratt 13, BE – 2000 Antwerpen, Belgium E-mail: [email protected]

Anna Sabidussi Department of Business Administration Wageningen University and Research Centre Hollandseweg 1, 6706 KN, Wageningen, The Netherlands E-mail: [email protected] Abstract: This paper investigates the effects of cooperation agreements as possible drivers of innovative performance for Small and Medium-sized Enterprises (SMEs). Drawing on the theoretical paradigm of ‘open innovation’ and on empirical evidence of the existence of a ‘threshold to innovate’, we analyse whether partnership agreements act as determinants for the SMEs to cross the innovative threshold or to persist in innovation activities. Our findings suggest that adopting cooperative strategies is beneficial for companies in order to become and/or remain innovators. Distinguishing among size classes, the collaborative advantage seems to be higher for the SMEs: joining forces with other companies, the SMEs can overcome the limits derived from their scarce resources and become active innovators. Keywords: cooperation; partnership; innovation; Small- and Medium-sized Enterprise; SME; probit. Reference to this paper should be made as follows: Cefis, E., Ghita, M. and Sabidussi, A. (2009) ‘Partnerships and innovative patterns in small and medium enterprises’, Int. J. Entrepreneurship and Small Business, Vol. 7, No. 4, pp.431–445.


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E. Cefis, M. Ghita and A. Sabidussi Biographical notes: Elena Cefis is an Associate Professor of Applied Economics at the Department of Economics, University of Bergamo, and a Research Fellow at the T.C. Koopmans Research Institute, Utrecht University, the Netherlands. She previously taught at the Utrecht School of Economics, Utrecht, Pompeu Fabra University, Barcelona, and at Bocconi University, Milan. She obtained in 1995 her PhD degree in History and her PhD degree in Economics in 1999 at the European University Institute, Florence, Italy. She is also an Associate Research Fellow at the St. Anna School of Advanced Studies, Pisa, Italy, and her main areas of research are industrial dynamics and the economics of innovation. She has published in Industrial and Corporate Change, Research Policy, Small Business Economics and the International Journal of Industrial Organisation. Mihaela Ghita is a PhD student within the Department of Accounting and Finance of the University of Antwerp, Belgium. She holds a BSc in Economics and an MSc in Social Policy Analysis and Statistics from KU Leuven, Belgium, and previously, she has worked as a Research Assistant at the Utrecht School of Economics, Utrecht University, the Netherlands, on a project part of the National Research Committee of the Netherlands (NWO) programme on innovation dynamics. Anna Sabidussi is an Assistant Professor of Corporate Financial Management and a Research Fellow of the Department of Business Administration at Wageningen University and Research Centre, The Netherlands. Her research areas are innovation management and R&D investments’ optimisation. Within the R&D investments’ decisions, she is especially interested in real options analysis. Within innovation management, her focus is on the strategic alliances, mergers and acquisitions in technology-related industries. Since 2005, she is a member of the research group for the project The Impact of M&A-Driven Market Dominance on Innovation Dynamics, sponsored by the NWO.

1

Introduction

Innovation is widely recognised as a driver of economic growth. Societal well-being benefits from innovation, as well as individual firms. From a macro perspective, companies’ ability to innovate represents a vital function for stimulating competitiveness and employment in economies (European Commission, 1993; European Commission 1995a). From a micro point of view, companies are continuously challenged by the need to be innovative, not only in order to flourish, but also to survive (Cefis and Marsili, 2006). According to several studies (Geroski et al., 1997; Cefis, 2003), a threshold effect exists in innovation activities. Distinguishing between two categories, non-innovative and innovative firms, Cefis (2003) found that companies experience the highest barriers when they try to exit their condition of non-innovators. In a study of Cefis (2003) based on patent applications, it has been shown that the probability to have the first patent is uniformly much lower that the probability to have n + 1 patents (when n ≥ l). The threshold induces a persistent negative effect and non-innovative companies tend to remain in their current status. The increased speed and complexity of technological advancements (European Commission, 1995a) and the multitechnological nature of products (Narula, 2004) have remarkably amplified the difficulties companies face in becoming and/or persisting as

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innovators. Innovating, especially in capital- and knowledge-intensive sectors, can require prohibitive levels of resources’ deployment. In these circumstances, the threshold effect can be particularly hampering for the Small- and Medium-sized Enterprises (SMEs) that are typically constrained by limited resources and can, therefore, experience higher barriers to innovate (Narula, 2004). In response to these complications, the last decades have witnessed the affirmation of the ‘open innovation’ paradigm (Chesbrough, 2003) and the widespread recourse to partnerships (Hagedoorn, 2002). From an ‘open innovation’ perspective, companies do not dispose of all the necessary resources needed to innovate. Partnerships can be used to access those resources, especially knowledge, or to ease their development (Hagedoorn, 1993; Duysters and De Man, 2003). The main objective of the present paper is to determine if partnership activities have an impact on the firms in order to become innovators and/or to persist in the condition of the innovators. The question is approached especially from the perspective of the SMEs that are mainly concerned with filling their ‘resource gaps’ for innovating (Teng, 2007). The present paper is structured as follows. Section 2 provides a brief overview of the theoretical foundation explaining the recourse to partnership activities for innovation. Section 3 develops the main hypothesis to be tested. Section 4 presents the data and the methods applied. Section 5 reports the obtained results. The conclusive remarks and the recommendations for further research are addressed in Section 6.

2

Theoretical background

Partnership activities can refer to a wide range of administrative modalities (Osborn and Hagedoorn, 1997), including equity alliances as well as collaborative agreements. In the present paper, we will use the generic term ‘partnerships’ to indicate the broad category of interfirm relationships established in seeking a mutual benefit to achieve innovation. The concept that companies foster innovation by using partnerships finds a conceptual foundation in the Resource-Based View (RBV) perspective (Nooteboom et al., 2007). The RBV approach derives from the works of Penrose (1959), Wernerfelt (1984), Barney (1991) and Barney et al. (2001), among others. At the core of the RBV approach, there is the concept that companies’ competitive advantage is determined by the key resources the firms possess (Wernerfelt, 1984). These resources, to guarantee a competitive advantage, have to be rare, valuable, not substitutable and imperfectly imitable (Barney, 1991). Since it is difficult for competitors to replicate them, these resources can be conceived, in economic terms, as the fonts of Ricardian rents (Lockett and Thomson, 2001). From the RBV standpoint, resources can be classified as tangibles (land, buildings, machinery, etc.) or intangibles (Galbreath, 2005). Intangible resources can be classified as assets or skills (Hall, 1992). Assets refer to what a firm owns (like patents, trademarks, etc.), while skills refer to the firms’ know-how and culture. Knowledge has been identified as the most strategically important intangible skill (Grant, 1996). The role of knowledge is so relevant that a knowledge management perspective has been defined as “the essence of the RBV” (Conner and Prahalad, 1996).

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There is a strong link between knowledge generation and innovation (Popadiuk and Choo, 2006). The firm that is able to generate new knowledge and transform it into new products can be defined as a knowledge-creating company whose central business is continuous innovation (Nonaka, 1991). Especially in markets where technologies evolve fast, companies need to continuously engage in the process of developing new resources (Wernerfelt, 1984). To account for this dynamic perspective, the RBV theory has been expanded to include ‘dynamic capabilities’. Dynamic capabilities refer to the “firms’ ability to integrate, build and reconfigure internal and external competences to address rapidly changing environments” (Teece et al., 1997). In the definition above, two aspects are especially worth noting. First, from a resource/knowledge perspective, novelty can be achieved through the integration, reconfiguration or ‘recombination’ of resources (Matthews, 2002). Recombination can be obtained by means of two mechanisms: the synthesis of the existing resources (where new links among the different knowledge bases are generated), or the reconfiguration of the resources (where the existing links among the knowledge bases are changed or altered) (Galunic and Rodan, 1998). Second, the resources used to innovate can be both internally developed or externally sourced. The rationale, from the RBV perspective, to enter partnership activities is that “organizations enter alliances with each other to access critical resources” (Gulati and Gargiulo, 1999) and to generate new knowledge (Tsai, 2001). Alliances, conveying resources from the outside world to the company, represent a “dynamic capability” (Eisenhardt and Martin, 2000). Partnership activities are especially significant for innovation because the firms cannot possess all the necessary resources alone (Powell et al., 1996). The recourse to partnership activities mainly takes place when a company is in a weak strategic position, struggling in highly competitive markets, or pioneering unknown technologies (Eisenhardt and Schoonhoven, 1996; Powell et al., 1996). Das and Teng (2000) have categorised the partnerships, distinguishing the level of similarity (the degree of resemblance among the resources) and the level of utilisation (the relevance of the contribution) involved in the relationship. When similar resources are associated with a high level of utilisation, they can typically generate economies of scale and scope in Research and Development (R&D). When dissimilar resources are combined with a high level of utilisation, they unveil all their potential generating synergies (Das and Teng, 2000). In case of similarity, the exchange of technological knowledge among the partners is facilitated (Mowery et al., 1998). When dissimilar resources have to be combined together, the partners need to have a certain level of ‘absorptive capacity’, that is, the “ability to recognize the value of new, external knowledge, assimilate it and apply it to commercial ends” (Cohen and Levinthal, 1990; Mowery et al., 1998). Therefore, a certain level of internal previous know-how is crucial in order to benefit from the partnership and to innovate.

3

Hypothesis

Consistent with the theoretical framework presented above, cooperation fosters innovation by permitting the integration of complementary knowledge (De Man and Duysters, 2005).


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Using partners to access resources can also be less time-consuming and less expensive than generating the same resources in-house (Hagedoorn, 1993). Moreover, partnerships can be used to combine the existing resources and reach the critical mass needed to innovate (Bidault and Cummings, 1994). All of the arguments above are significant for all companies, but they have a special relevance from the perspective of the SMEs. According to the European Commission, “SMEs are the key sector for generating … creativity and innovation through the Union” (European Commission, 1995b). The SMEs have an absolute size limitation, but this constraint has been overcome by the recourse to partnership activities (Narula, 2004). Therefore, we formulate the following hypotheses: H1a Cooperation has a positive effect on companies to become and/or remain innovators. H2a The SMEs benefit more from cooperation than large companies in order to become and/or remain innovators. Despite all the good reasons mentioned above to expect positive effects of the collaboration on innovation, the literature also reports reasons why partnerships may fail. In particular, and in line with the theoretical framework presented above, the results of the partnership can be hampered by the relative distance between the knowledge bases of the companies involved in the relationship (Lane and Lubatkin, 1998). Additionally, some companies can decide to enter a cooperation not to share and develop knowledge, but to predate their partners’ technological expertise (Hagedoorn, 1993). This can happen more frequently when cooperation is established among competing firms (De Man and Duysters, 2005). In this case, companies incur costs to protect themselves from their partners’ opportunistic behaviour (Chan et al., 1997). Therefore, managing alliances also requires a certain level of existing resources and the associated costs can be unaffordable for SMEs (Narula, 2004). Therefore, we formulate the following hypotheses: H1b Cooperation has a negative effect on companies to become and/or remain innovators. H2b The SMEs benefit less from cooperation than large companies in order to become and/or remain innovators.

4

Research design

4.1 The data The analysis has been performed by linking two Dutch databases: the Community Innovation Survey (CIS) and the Business Register (ABR). The CIS collects data about innovation at the firm level and it has been conducted on the EU state members. The survey represents a joint effort by the Commission’s services, Enterprise DG and Eurostat to obtain comparable information and to monitor the

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innovative characteristics of the European companies. The data are collected by national statistical authorities every four years and it refers to the activities performed by firms in the previous three years. The Netherlands represents an exception to the typical situation in other European countries, as the CIS is carried out here every two years. This offers, therefore, the opportunity to study five waves: CIS 2 (from 1994 to 1996), CIS 2.5 (from 1996 to 1998), CIS 3 (from 1998 to 2000), CIS 3.5 (from 2000 to 2002) and CIS 4 (from 2002 to 2004). Typically, CIS questionnaires have been addressed to companies with at least ten employees (Eurostat, 2001). In this respect, the Netherlands has followed a dissimilar path, having also included for CIS 2.5 and CIS 3 companies with less than ten employees. The ABR is the official database of all the companies registered in the Netherlands for fiscal purposes. It contains detailed information on the number of employees and the sector (at the six-digit Standard Industrial Classification or (SIC)) in which the firm operates. Moreover, the dates of the entrance and exit from the ABR, precious information about the lifespan and/or the age of the company can be derived and tracked (Cefis and Marsili, 2006). The resulting unique dataset obtained that combines the CIS waves and the ABR provides distinctive information on the characteristics and innovative activities of more than 3500 companies per wave. In our analysis, we have decided to use the most recent non-overlapping CIS waves, namely CIS 3 and CIS 4 and not the entire panel data available, in order to avoid a severe selection problem due to the stratified characteristics of the CIS samples. Indeed, we needed to consider the lagged cooperation proxy that indicates the presence of the cooperation agreement in the previous CIS wave with respect to the one in which we are measuring the effects on innovation. The lag among the two non-overlapping CIS waves is necessary in order to allow the cooperation agreements to exert their effects on the firm’s innovation proxies and to avoid an endogeneity problem. Therefore, we chose to analyse the firms present in the two most recent non-overlapping waves to capture the effects of partnership agreements on innovation. A schematic overview of the construction design of our dataset is given in Figure 1. Figure 1

CIS manufacturing – data file structure

Source: CIS and ABR records

ABR files 1998–2004

CIS files (Waves 3, 3.5, 4)

FIRM DEMOGRAPHIC DATA INNOVATION FIRM-LEVEL DATA

CIS–ABR PANEL 1998–2004


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4.2 The methodology The main focus of our analysis is given by the changes in the firms’ innovative behaviour among the different size classes. The choices that the firms make with respect to investing in innovation or not, following cooperation agreements, are analysed using probit regression models. Firstly, we estimate the Transition Probability Matrices in order to obtain an estimate of the probability of firm i moving from the status of active innovator (Iit–1) or non-innovator (N–Iit–1) in period t – 1 to an active innovative status (Iit) in period t. A schematic overview of the variables used to depict the firms’ innovative patterns across waves is given in Table 1. It also includes an accurate description of the control proxies that will be employed in the parametric models. Table 1

The variables used to develop the firms’ innovative patterns

Dimension

Variable

Description

New entrant innovators

Transition at time t from non-innovator t – 1 to innovator t

Firms registered a change in innovative behaviour, from non-innovator in the previous CIS wave to innovator in the present one

Persistent innovators

Transition at time t from non-innovator t – 1 to innovator t

Firms registered no change in innovative behaviour, registering as an innovator in the previous CIS wave and staying as an innovator in the present one

Involvement in cooperation agreements (at time t – 1)

Lagged involvement (with respect to transition at time t) in cooperation agreements for innovative purposes

Firms declared having been involved in cooperation agreements in the previous CIS wave

R&D intensity (at time t – 1)

Lagged R&D effort (with respect to transition at time t)

R&D expenses divided by the number of employees in the previous CIS wave

Pavitt’s taxonomy

Firms’ taxonomy, four categories: science-based, specialised suppliers, scale-intensive, supplier-dominated

Firm size

Number of employees

Firm age

Expressed in months (since the date of entry on the ABR)

Size classes: small (10–49), medium-sized (50–249) and large (>250)

Each probability (pit) of change from one innovative state to another within a timeframe [(t – 1) – t] can be regarded as a pattern of firm-level innovative behaviour. We analyse whether or not the firms are more likely to pass from non-innovators to active innovators, namely, to make higher investments in R&D, in licensing, the training of personnel or in innovative machineries following their entry into cooperation agreements. Two innovative patterns will be the main focus of the analysis: the firms passing from being non-innovators to active innovators, as well as the firms’ persistence in innovative activities. We assume that a firm i will experience a change in its innovative behaviour in period t following a cooperation agreement undertaken at time t – 1. The expected change in the innovative patterns depends on:

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•

their previous involvement in innovation-driven cooperations

•

their observable control variables (technological regimes, firm size and age)

•

their unobservable firm-specific attributes, captured by µi.

The effect of the unobservable time-varying factors is captured by idiosyncratic error (εit). Using a probit framework, the model can be estimated by the following empirical model: P (ϕis ) = probit ( β0 Coit −1 + β1 R & Dit −1 + β2 SBi + β3 SSi + β4 SIi + β5 Ageit −1 + β6 Ageit2 −1 + β7 Sizeit −1 + β8 Sizeit2 −1 + β9 Ageit −1 ∗ Sizeit −1 + µi + εit ),

where ϕis denotes the firms’ transitions in different innovative states with s = 1, 2. More precisely: Pr (Yit = 1 | Yit −1 = 0) = ϕi1 Pr (Yit = 1 | Yit −1 = 1) = ϕi 2 ,

where Yit is the firms’ innovative status (0 = non-innovator/1 = innovator). In particular, ϕ i1 represents the probability that a firm that was a non-innovator in period (t – 1) has to become an innovator in period (t). Conversely, ϕi2 represents the probability that a firm that was an innovator in period (t – 1) has to remain an innovator in period (t). The former probability tells us the chances that a firm has to overcome the innovative threshold, while the latter probability tells us how many chances a firm has to be a persistent innovator. Using a probit model, we model such probabilities on different types of regressors. Coit–1 represents our main variable of interest: the involvement in cooperation agreements undertaken for innovation-related purposes in the previous period. Since our aim is to model firms innovative patterns, we have included among the regressors the R&D intensity (the R&D expenses at time t – 1 divided by the number of employees) and R&Dit–1 (because of its role in determining a firm’s capability to innovate). The others are mainly control variables: SB, SS and SI represent the technological regimes according to Pavitt’s taxonomy (science-based, specialised suppliers and scale-intensive) (Pavitt, 1984) and Age and Size are the firms’ demographic characteristics. The squared terms of Age and Size are also included, as we expect a non-linear relationship between both firms age and size and their innovative behaviour. We also add an interaction term, age-size, to our model to test the possible heterogeneity in the innovative behaviour of large and small firms as firms mature. The firm-level changes in the innovative states we are analysing are the innovative jumps from non-innovators to innovators and innovation persistency. The time interval of the transition from t to t + 1 is 3–5 years, given the cadence of the CIS waves. This time gap allows for a sufficiently long period in which the collaboration agreements can become effective and start yielding results. Splitting the analysis by size classes (small, medium-sized and large) allows the analysis of the level of heterogeneity induced by the firms’ size in deriving patterns of entry or persistence in innovativeness.


5

439

Results and discussion

The descriptive statistics (available on request) reveal that the firms involved in cooperation agreements in CIS 3 are, on average, larger than those that have not partaken in such activities: the average number of employees of the firms previously involved in cooperation activities is more than double compared to the firms not engaged in cooperation (a mean of 375.7 employees versus 147.1 for the latter). It also appears from the statistics that those firms (probably due to them being large firms) also invest more in R&D and innovation activities, in general. Indeed, the R&D intensity for those involved in cooperation agreements is almost four times larger for the firms actively collaborating in innovation activities (a mean of 8.2 versus 2.87 for the noncollaborating firms). The same pattern can be seen with respect to innovation intensity: the firms involved in collaborations invest almost double the amount of the noncollaborators (the ratio is 11.9 versus 6.3 for the latter group of firms). The multivariate analysis is split for innovative transitions and innovative persistence. Clear distinctions are also made across size classes, covering first our complete sample and then lowering the level of analysis to reflect the different innovative patterns across the small, medium and large firms. Table 2 shows that for the overall sample, engaging in cooperative agreements for innovative activities will increase the probability of becoming an innovator in four years by 11%. What also explains this transition is the fact that the firms have invested in R&D. Indeed, R&D intensity is significant and positive. This result indicates that cooperation is not used as a substitute of R&D activities, but as a complement. The finding confirms that cooperation needs to be coupled with internal investments in order to build the internal capacity to absorb external resources and knowledge and to exploit better the results from the collaboration and the partnerships. If we consider the distinction between the small, medium and large companies, we note that cooperative activities are especially beneficial for the SMEs. Indeed, entering into partnerships increases by almost 20% the probability to become an innovator for the small companies, while for the medium and large-sized firms, this percentage is remarkably lower (around 6% for the medium firms and almost 12% for the large companies). For the SMEs, the intensity of their R&D activities is also a significant factor explaining the transition from a non-innovator to a innovator status, while it does not seem not to matter for the large firms. Size matters to explain the transition from non-innovator to innovator, confirming that the small companies encounter more difficulties crossing the threshold. The effect of size is significant and nonlinear, but only for the overall sample: the differences in size matters in explaining innovative behaviour when they are ‘significant’ differences, implying that there is a different innovative behaviour among the small, medium and large firms. In fact, when we consider more homogeneous classes with respect to size, the effect of the firms’ size disappears.

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Table 2

The innovative patterns following partnerships or cooperation agreements Transitions from non-innovative to innovative states Probit models reporting marginal effects Innovative transitions (non-innovators to innovators) All firms

Dependent variable

Small firms

Medium firms

Large firms

dF/dx

z

dF/dx

z

dF/dx

z

dF/dx

z

Cooperation agreements at time t – 1

0.11***

4.17

0.2***

3.33

0.07**

2

0.12**

2.2

R&D intensity at time t – 1

0.03***

6.36

0.04***

3.2

0.03***

Science-based

0.122***

(0.02)

(0.06)

(0.004)

(0.01) 3.4

(0.04) Specialised suppliers

0.04 0.07*

1.3

0.2***

1.6

–0.03

4.75

–0.008**

–0.24

0.006

–1.7

–0.03***

LR chi2 R-squared Number of observations

Notes:

1.2

0.13 0.07 –0.01

0.49

–0.007

0.95

–0.027***

1.07

0.02 0.05

0.3

–0.01

0.34

0.009

0.06

0.005

–0.07

–0.03***

5.04

0.23***

2.7

0.41

1.22

–0.26*

–1.37

(0.19) 0.11

–0.03

–1.2

(0.02) 0.33

(0.01) –6.8

0.29***

(0.34)

(0.08) –0.3

3.5

(0.07)

(0.17) –0.4

0.26***

(0.054)

(0.7)

(0.02) –24.2

0.04

0.92

(0.06)

(0.06)

(0.03)

(0.01) Age*Size

0.08

2.03

(0.04)

(0.24)

(0.004) Square of age

–1.2

(0.14)

(0.13) Square of size

–0.056

0.09**

0.007 (0.007)

(0.05)

(0.07)

(0.04) Firm age

1.4

(0.04)

(0.04) Firm size

0.08

(0.05) 5.24

(0.006)

(0.06)

(0.03) Scale-intensive

(0.03)

0.03*

1.54

(0.02) –19.08

–0.03***

(0.001)

(0.004)

(0.001)

(0.002)

893.2***

100.7***

474.07***

381.5***

24.60%

11.42%

22.80%

42.40%

2624

690

1501

661

–14.3

(1) dF/dx is for the discrete change of the dummy variable from 0 to 1; for continuous variables, it is calculated at the mean value. (2) z corresponds to the test of the underlying coefficient being 0. (3) Standard errors of the marginal effects in parenthesis; statistically significant at: *** 1% level; ** 5% level; * 10% level.

Age affects the probability to become an innovator in a significant, negative and nonlinear way, but only for large firms. However, the interaction between age and size negatively affects the transition in the overall sample as well as for each size class, suggesting that too large and/or too old companies may encounter difficulties in becoming innovators. It seems that if the large companies were not able to innovate in the early stages of their life, they have less probability to do so in the later stages. This result can be surprising, considering that the older companies should be those that had the opportunity to accumulate more resources over the years. A possible explanation is that the nonrenewed stock of resources can become a source of rigidity for companies and impede innovation (Leonard-Barton, 1992). This can be especially hampering for the larger firms that typically have the disadvantage of being less flexible than the smaller firms (Narula, 2004).


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The organisational and technological characteristics of technological regimes, captured by Pavitt’s taxonomy, seem to be important in explaining the probability to cross the innovative threshold, especially in capital- and knowledge-intense sectors. Table 3 shows the factors that affect the other innovative behaviour in our interest, that is, the persistence in innovative activities. Entering into cooperation activities positively and significantly affects the probability to remain in the innovators’ class. For the overall sample, the results show that, given that a firm was already an innovator at time t – 1, a partnership agreement increases by 1% the probability of remaining an innovator over a four-year period. This process is supported by the effects of R&D intensity. Indeed, the probability of being a persistent innovator increases if the firms invest in R&D and perform a partnership agreement: cooperation needs to be coupled with the firms’ efforts to build new internal knowledge and capabilities. Table 3

The innovative patterns following partnerships or cooperation agreements Persistence at time t + 1 in innovative activities Probit models reporting marginal effects Innovative persistence at time t + 1 (innovators to innovators) All firms

Dependent variable

dF/dx

Cooperation agreements at time t

0.01***

R&D intensity at time t

0.003***

Small firms z 4.3

(0.004) 8.8

0.006*

Specialised suppliers

0.0008

1.7

0.0003

0.4

0.007*

0.01

–0.0003

1.6

–0.001***

–0.03

–0.0008

–2.6

0.002***

LR chi2

0.013***

3.55

0.008**

2.3

0.0003***

(0.007) 4.08

0.0007 –0.0004* –0.0004 0.003 0.0015 –0.0005

–0.86

–0.0002

1.04

0.0001***

6.6

0.0032

–1

0.00003

0.7

0.001

0.01

–0.13**

0.2

0.018

–1.9

0.014**

0.9

–0.3

1.9

0.002***

0.02 –0.04 –0.008 0.002

–1.5

–1.6 –0.9 1.45

–0.003

–0.3

(0.0009) 11.8

0.002

(0.0006)

(0.0002)

(0.0009)

(0.001)

1259.7***

156***

746.3***

422.8***

R-squared

0.61%

0.6

0.59

0.67

Number of observations

2624

690

1501

661

Notes:

1.5

(0.002)

(0.002) 5.2

1.6

(0.01)

(0.0008) –1.05

0.007

(0.04)

(0.02) –1.2

2.01

(0.03)

(0.08) 0.73

0.02

(0.0007)

(0.005) 1.08

3.9

(0.02)

(0.003) –1.7

0.002*** (0.002)

(0.005)

(0.0003) 14.6

0.003***

(0.008)

(0.001)

(0.0008)

(0.01) Age*Size

0.9

(0.003)

(0.005) Square of age

0.0005

(0.005)

(0.13) Square of size

z

(0.0007)

(0.004) Firm age

dF/dx

(0.0007)

(0.003) Firm size

z

(0.001)

(0.002) Scale-intensive

dF/dx

(0.0004)

(0.04)

Large firms

z

(0.001)

(0.001) Science-based

Medium firms

dF/dx

(1) dF/dx is for the discrete change of the dummy variable from 0 to 1; for continuous variables, it is calculated at the mean value. (2) z corresponds to the test of the underlying coefficient being 0. (3) Standard errors of the marginal effects in parenthesis; statistically significant at: *** 1% level; ** 5% level; * 10% level.

7.3

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If we focus on the distinction between the small, medium and large companies, we notice that for the medium and large companies, entering partnerships augments by about 1% their chances to remain innovators. Remarkably, for the small firms, the engagement in partnerships is not significant in explaining the persistence in the innovator status. This result seems to confirm the previous findings that innovating constantly is rare and most companies innovate only occasionally (Geroski et al., 1997; Cefis, 2003). For the small companies, the effect of partnerships seems to fade over time. This seems to be confirmed by the fact that the intensity of the internal efforts is significant for all size classes. Thus, in the long run, a persistent innovative behaviour cannot be sustained only by external sources of knowledge: the internal sources are the crucial and strategic factor. Inside the medium and large size classes, size has a significant, negative and nonlinear effect on the probability to remain in the innovative status. This seems to suggest that the firms’ dimension is, in itself, not a sufficient condition to continually innovate. An explanation could be that the smaller firms, relative to their class (not in absolute terms), are more able to adapt to changing environments (Narula, 2004). The nonlinearity of the effect suggests that the above is true, as long as the limitations associated with the smaller firm size do not offset the benefits. Contrary to what happened in the probability of crossing the innovative threshold, the interaction between size and age positively affects the probability of being a persistent innovator. Thus, once the threshold is crossed, the larger and more experienced companies have a higher probability to endure in an innovative status. Surprisingly, for the persistence in innovative activities, the results only partially support the previous finding (Cefis and Orsenigo, 2001) that technological and organisational characteristics matter in explaining the probability of remaining an innovator. Indeed, the Pavitt taxonomy coefficients are significant only for the science-based sectors. In summary, the results suggest that cooperation activities increase the probability of all firms becoming and remaining innovators. The findings support Hypothesis 1a, that firms search outside the company for the resources necessary to innovate. Confirming that companies benefit from entering partnerships with each other, we reject Hypothesis 1b, which states that partnerships negatively affect the probability of becoming and/or remaining innovators. The findings also confirm Hypothesis 2a, that the benefit of cooperation is greater for the SMEs than for large companies. The contrary Hypothesis 2b is, therefore, rejected.

6

Conclusion

The results of our analysis show that adopting cooperative strategies is beneficial for companies in order to become and/or remain innovators. Distinguishing among size classes, this benefit seems to be more accentuated for the SMEs. To perform our study, we have generated a unique dataset of Dutch manufacturing firms covering the period from 1998 to 2004. To generate the database, we have combined the information on the innovative behaviour of the Dutch companies provided by the CIS and the demographic data gathered from the ABR of all the companies registered in the Netherlands.


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The findings of the present analysis are in line with the proposed theoretical framework. Interpreting the RBV approach from an ‘open innovation’ perspective (Chesbrough, 2003), we support the view that companies can become or remain innovators by using partnerships to access critical resources and knowledge. Cooperation, however, does not seem to be a substitute for the internal effort aimed at innovation; it is, rather, a complement. Cooperative agreements are a vital mechanism to promote a learning process where partners benefit from sharing and combining their knowledge bases (Khanna et al., 1998). Consistent with the presented theoretical approach, the firms are, moreover, not exempted from investing in building their own resources to develop ‘absorbtive capacity’ (Cohen and Levinthal, 1990) and being able to profit from cooperation. Indeed, the intensity of R&D expenses has been shown to be a significant factor in explaining both the transition to an innovator condition and the persistence in the same status. In particular, the strategic use of cooperation seems to be favourable for the SMEs. Our results confirm that by joining forces with other companies, the SMEs can surmount the boundaries derived from their limited resources and become innovators. For the SMEs, the situation will be different if we focus on being a continuous innovator. In this case, persistence does not seem to be sustained by cooperation activities. Our results seem to suggest that, to remain innovators, the SMEs should pursue the strategy of augmenting the intensity of their R&D efforts.

Acknowledgements The authors thank Rob Alessie, Adriaan Kalwij, Lawrence Loughnane, Utz Weitzel, Yi Zhang and the participants of the 2nd European Conference on Entrepreneurship and Innovation, Utrecht, 8–9 November 2007, for their helpful comments and suggestions. The empirical part of this research has been carried out at the Centre for Research of Economic Microdata at Statistics, the Netherlands (CBS). The views expressed in this paper are those of the authors and do not necessarily reflect the policies of the CBS. The authors thank Gerhard Meinen and the on-site staff of the CBS for their precious collaboration. They gratefully acknowledge the financial support of the NWO (Dynamics of Innovation Programme, grant no.: 472-04-008). Elena Cefis also acknowledges the financial support of the University of Bergamo (grant ex 60%, n. 60CEFI07, Department of Economics).

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Strategy and innovation: making the right strategic decision and developing the right innovative capabilities Lawrence J. Loughnane Center for Regional Development Studies CETYS Universidad Fracc. El LagoTijuana, BC, Mexico E-mail: [email protected] Abstract: All organisations must be innovative. Is this true? No; despite the call for companies to be innovative, research indicates it is not necessary for an organisation to be innovative to be highly successful. There are two types of innovation: upstream and downstream innovation. Upstream innovation is the development of new inventions and technologies. Downstream innovation is the process of turning the inventions and processes into economic value. Vision drives the decision to pursue innovation. Innovation exists in a context approaching chaos. It exists in a context where complexity is high and the unpredictable occurs far more frequently than predictable results. A company that chooses to pursue innovation must recognise that being innovative is not a strategy. Being innovative is a capability that is the result of a successful strategy. Keywords: innovation; entrepreneurship; creativity; business practice; strategy. Reference to this paper should be made as follows: Loughnane, L.J. (2009) ‘Strategy and innovation: making the right strategic decision and developing the right innovative capabilities’, Int. J. Entrepreneurship and Small Business, Vol. 7, No. 4, pp.446–456. Biographical notes: Lawrence J. Loughnane is an Associate at the Center for Regional Development Studies at CETYS Universidad. He received his PhD from the University of Limerick, Ireland. He is also the Director of Programs for Allium, a consulting firm that specialises in strategic assessments and management development. He has taught in the USA, Spain, Ireland and Mexico.

1

Introduction

There is a constant theme in the business press and respected business publications that all organisations must be creative and/or innovative. The definitions of creation and innovation are very close; close enough that many people consider them synonyms. They are not. Creativity is about idea generation. Innovation is about idea implementation.


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Innovation is typically understood as the introduction of something new and useful, for example, introducing new methods, techniques or practices, or new or altered products and services. It is critical for an organisation to decide if it is going to pursue innovation as a management practice. To be considered innovative, an organisation needs to change its industry in some way (Joyce et al., 2003). Innovators are focused on finding altogether new product ideas or technological breakthroughs that have the potential to transform industries. It is not necessary for an organisation to be innovative to be highly successful (Joyce et al., 2003). Once an organisation decides that innovation will be a management practice, it must decide if it is going to pursue upstream innovation or downstream innovation. Upstream innovation is the implementation of one’s own ideas. Downstream innovation is implementing the ideas of others. Both upstream and downstream innovations have the same goal – to make investments and manage those investments so the return on the investments contributes to superior performance. Superior performance is defined as the sustained creation of value for which a customer will pay. It is problematic that few companies are capable of excelling at innovation – it is a very difficult management practice (Hamel, 2003). Without other complementary management practice skills, innovation rarely, if ever, results in the creation of value. Determining what management practices will lead to superior performance is the first step to becoming a leader in an industry. Traditionally, companies have been told that industry forces (Porter, 1980) and how an organisation reacts to those forces determine performance. Industry leaders, rather than focusing on external forces, focus on developing internal capabilities (Hawawini et al., 2002). It is important to note that it is the industry leaders or those that want to be industry leaders that focus on internal capabilities. Average or middle-of-the-road companies focus on the external forces and how their strengths and weaknesses match those forces. To be innovative and thus be in a position to change its industry in some way requires that an organisation develop the capability to be innovative as a management practice. Joyce et al. (2003) document the results of research indicating that: •

companies that outperform their industry peers excel at what are called primary management practices – strategy, execution, culture and structure

•

companies that outperform their industry peers supplement their skill in primary areas with a mastery of any two out of four secondary management practices – talent, innovation, leadership, and mergers and partnerships.

Note that companies that exhibit superior performance excel at all of the primary management practices. But it is not necessary for a superior performer to be innovative. Innovation is not a primary management practice. Innovation is a secondary management practice. (Secondary in this sense means that there is a decision about which two of the four secondary practices a company will use.) An organisation must make a decision to invest in the development of a capability to be innovative. Based on the amount of literature on innovation, it might be expected that all companies should invest in the creation of an innovative culture. The truth is few companies really make this investment.

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Those companies that do make the investment often fail to achieve the intended objectives because it is a very difficult management practice. And, it is not always the best investment an organisation can make.

2

Management practice

Management practice can be viewed as the sides of a triangle. Each side supports the other two. The sides of the triangle are content, context and process (see Figure 1). Content is limited by an organisation’s capability and capacity. The competitive environment (industry forces) defines context. Process is characterised by the patterns of organisational behaviour an organisation exhibits as it gets things done. Figure 1

Management practice

Content

Context

Process Management practice is contextual simply because what works in one situation (context) can easily fail in another. When trying to determine what kind of management practice will work in a particular context, a good place to start is to think about context as existing on a continuum (see Figure 2). Predictability requires stability. Stability is achieved through policies and procedures coupled with flawless execution and with very few decisions. As chaos is approached, the number of decisions made increases dramatically. The complexity of the context increases. Flawless execution becomes more difficult. The power (knowledge, support and resources) required to make good decisions increases. Decisions are subject to chance rather than predictability. Innovation exists in a context approaching chaos. It is a context where complexity is high and the unpredictable occurs far more frequently than predictable results. An organisation is not innovative because it has ideas, even great ideas. An organisation is innovative when it converts the idea into a completely new product or a technological breakthrough that has the potential to change an industry. Joyce et al. (2003) tell us that “innovative companies lead the way with industry changing innovations and a willingness to cannibalise offerings, resisting the temptation to wring every last cent out of a product before introducing another to take its place”.


Chance Predictability

Complexity

Innovation

Chaos

The innovation context

Stability

Figure 2

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The problem

Deciding that innovation is an essential management practice is not a decision to be taken without a great deal of reflection. Few senior leaders have a clear, well-developed model of what innovation looks like as an organisational capability. And since they do not know what it looks like, they do not know how to build it (Hamel, 2003). Hamel (2003) found that two core challenges must be overcome if innovation is to be developed into a deep capability in any organisation. The first challenge is that most companies have a very narrow idea of innovation, usually focusing just on products and services. Second, most companies devote much more energy to optimising what is there (current products, services capabilities) than to imagining what could be. There is not a shortage of creative people in most modern business organisations. The problem is the shortage of management skills necessary to follow through. By its very nature the creative process often is not structured, nor are the creative people. Many creative people do not know how an organisation gets things done. Many creative people do not know how the organisation makes money. Levit (2002) informs us that creativity is not enough: “All too often there is a peculiar underlying assumption that creativity automatically leads to actual innovation.”

Creativity and the innovation that follows often require organisational change. Most organisational-change programmes do not achieve their intended results. Why? Consider a simple example. The creative person has lots of ideas but no implementation skills. The next-in-command has a high degree of capability to manage the status quo but has a low acceptance of new ideas, a low capability to consider change and a low level of skill to manage change. Perhaps creativity will occur, but not innovation. Few companies with a history of stability can change into innovative companies simply because of the good ideas of creative people and the good intentions of top management. Organisations, creativity and innovation do not make for a happy marriage. Creativity requires ‘permissiveness’. Organisations require order and conformity to get things done. Creativity and innovation can wreak havoc on the organisation.

4

The solution

Suppose that an organisation decides that it needs to be creative and innovative. How can the circle created by the problems between the organisation and the need to be creative and innovative be squared; i.e., what is the solution? Perhaps one starting point is to define innovation differently. Bhide (2006) discusses two types of innovation: upstream as the development of new inventions and technologies, and downstream as a system of turning inventions and processes into economic value. Upstream and downstream innovations require different knowledge skills and resources and thus different strategies.

Upstream (creativity)

Scientists and Engineers

Downstream (economic value)

Local Adaptation

Proliferation of species and dimensions

Figure 3

Continuities – incremental advances

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The innovation system

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At this point it is important to remember that formulating and implementing strategy is a management practice. Innovation is also a management practice. The ability to practise innovation is the result of the successful implementation of a strategy. Innovation results from innovation process execution. Figure 3 illustrates innovation as a system that lies on a continuum. Innovation is a complex and usually gradual process that involves many players (companies) making incremental advances over time – the continuities. Scientists and engineers work at ideas and creativity at the upstream point. At the downstream point, big ideas are adapted to create economic value at a local level. Along the continuum there are proliferations of species (different firms responding to different customer needs). The species exist in different local competitive environments with different business systems (dimensions). First, it is important for an organisation to decide where it exists along the innovation system continuum and how it creates value within the system. The organisation must determine which secondary management practices – talent, innovation, leadership, mergers and acquisitions – best support its primary management practices – strategy, execution, culture and structure. Second, it must choose to practise innovation. Third, the organisation must assess its competitive environment to determine what level of creativity and innovation is needed as a management practice.

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Back to the basics: strategy, execution, culture and structure – primary management practices

In their groundbreaking study of 200 management techniques, Joyce et al. (2003) found surprising results: most techniques themselves have no direct impact on superior business performance. What does? Mastery of business basics is the key to superior performance. To sustain superior performance, an organisation has to excel at four primary management practices – strategy, execution, culture and structures – and any two of four secondary practices – talent, leadership, innovation, and mergers and partnerships. The key to this ‘4 + 2’ formula is not which technique you choose within each practice, but how well and consistently an organisation sticks with it. There is no recipe to follow. But the most enduringly successful companies in the study (those delivering a ten-fold return to investors over a ten-year period) clearly demonstrated hallmarks that any organisation can follow. What one learns about strategy from Joyce et al. (2003), is how market competition is shaping up for the future. Innovation is a practice that requires a constant research effort on customer knowledge, market analysis, pricing, the competition and much more. The authors also reveal their assumptions of how strategy is developed in the organisation. Strategy, they argue is emergent. Mintzberg (1994) would agree that strategies emerge but when looking at results, He argues that strategies are realised. Joyce et al. (2003) persuade us that there is a synthesis between the vision prescribed by the corporation’s executives and those actions, investment decisions and prioritisations that bubble up from the bottom of the organisation from among middle managers, engineers, the sales force, and financial staff. Mintzberg (1994) informs us that realised strategies are the result of patterns of decisions over time. What is important is there is no choice about the primary management practices; however, there is a decision to be made in choosing to pursue innovation as a secondary management practice.


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Choosing innovation as a secondary management practice

Vision drives the process of deciding to pursue innovation. Vision is the result of competent strategic analysis (a process). Vision results from an examination of the environment (the context) in which an organisation exists. A true vision reflects the direction that is desirable and possible. Choosing to be an innovative organisation is a risky decision – it has to be possible.

7

Aligning the primary and secondary management practices

A continual programme to deepen the capability to perform both the primary and secondary management processes is essential. Accomplished athletes make competing look easy, but their skill is not just the result of being born with certain attributes. Their skill comes from practice and discipline over time. Superior athletic performance is the result of a balance of the physical, mental and emotional systems. Organisations are systems and the parts of the systems interact. In organisations the alignment of the primary and secondary management practices requires a systems approach. None of the practices are stand-alone. The practices must be aligned and accomplished at the same time.

8

The practice of innovation

To be successful at innovation, an organisation must have a “well developed model of what innovation looks like as an organizational capability” (Hamel, 2003). According to Hamel, few senior managers can describe their corporate innovation system. In fact, few companies practise innovation. A review of the literature supports this view. The same companies – Dell, Starbucks, Wal-Mart and Google – are examples that are cited as being innovative by multiple authors in multiple articles. To develop an organisational capability in innovation requires a strategic decision. One must remember at this point that innovation is one way an organisation will create competitive advantage (value for which a customer will pay). For a strategic decision to be implemented requires a significant investment for which there must be a significant return. Investment in creating innovation capability is about making a trade-off regarding how a company will compete. A company must evaluate trade-offs to determine the greatest return on investment. Joyce et al. (2003) advise that it is not important what technique is used to perform the primary or secondary practices. For example, Sawhney et al. (2006) describe 12 dimensions of the business system in which an organisation can look for opportunities to innovate. They identify four key dimensions as anchors: offerings (what), customers served (who), processes employed (how) and points of presence it uses to take its offerings to market (where). Hax and Wilde (1999) developed the Delta model. According to them, the Delta model defines strategic positions that reflect fundamentally new sources of profitability, aligns the strategic positions with a firm’s activities, introduces adaptive processes and shows granular metrics that are drivers of performance. What is important is that an organisation excels at the technique chosen. Collins (2001)

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reported in Good to Great that what existed in companies that went from good to great was a down-to-earth, pragmatic commitment to excellence of process – a framework – that kept the company, its leaders and its people on track for the long haul.

9

Investing in innovation: making the right strategic decision and developing the right innovative capabilities

Investing in innovation is a strategic decision. Determining what innovative capabilities a particular company needs is the result of analysis of the company and its environment. Selecting the capabilities to be developed is a strategic decision. Innovation is a management practice requiring company-specific knowledge, skills and resources. Innovation is real, hard work that can and should be managed like any other practice. Two businesses that deal in the same goods and services, in the same territory and with the same clientele, cannot coexist equally (Henderson, 1989). Every business is different – a business exists in a unique context. As context changes – internal and external – companies must adapt. They must adapt by changing the content of innovation. For example, content may shift from product innovation to process innovation. However, the process of innovation (identifying opportunities and applying these ideas to the creation of customer value) is a constant.

10 Innovation and entrepreneurship Entrepreneurship is not innovation and innovation is not entrepreneurship. Entrepreneurship is about creating wealth. Corporate entrepreneurship is the discovery and pursuit of new opportunities through innovation and venturing (Hayton and Kelley, 2006). Innovation is about creating customer value. Each requires a different set of knowledge, skills and resources. Entrepreneurship is not a small or large business activity, nor is innovation. Companies of all sizes practise entrepreneurship and innovation. To implement either, companies use a variety of management tools; for example, scanning for opportunities in entrepreneurship and brainstorming in innovation. Both entrepreneurship and innovation, to be successful, require an investment in the development of capabilities to use specific management tools. What is important is that an organisation must choose to develop the capabilities that best reflect those required by the context in which it operates. And, an organisation must define what the terms ‘innovation’ and ‘entrepreneurship’ mean in its particular context. The terms ‘entrepreneurship’ and ‘innovation’, when not defined in context, can negatively influence other practices such as strategy. How innovation and entrepreneurship are defined can have a major impact on the culture of an organisation. It is important to remember a previous point about innovation: stability is the enemy of innovation. The same can be said about stability and entrepreneurship.


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11 Academic impact Examining the extent literature reveals two serious questions about management and the practice of innovation: 1

Do managers have a clear, well-developed model of what innovation is?

2

Do managers have the requisite skills to manage innovation?

Innovation is a management practice and recent literature (Pfeffer and Fong, 2002; Mintzberg, 2004) indicates that there is little evidence that business school research is influential on to practice of management. Management and managerial skill is considered a core competence for sustainable superior performance. Those responsible for research and curricula must examine and evaluate programmes to insure they prepare students to manage in organisations that choose to pursue innovation.

12 Conclusion Even though there is a constant theme in the business press and respected business publications for companies to be innovative, it is not necessary for an organisation to be innovative to be highly successful. In fact it is problematic that few companies are capable of excelling at innovation – it is a very difficult management practice. Management practice has content, context and process. It is contextual simply because what works in one situation (context) can easily fail in another. There is not a shortage of creative people in most modern business organisations. The problem is the shortage of management skills necessary to follow through. Companies must invest in the development of management skills to take ideas through to value creation. It is important that a company first decides where it exists within the innovation system and how it creates value within the system. There is no choice about primary management practices; however, there is a decision to be made in choosing to pursue innovation as a secondary management practice. Vision drives the process of deciding to pursue innovation. Innovation is a capability and a company that pursues innovation must have a continual programme to deepen the capability to perform both the primary and secondary management practices. To be successful at innovation, an organisation must have a ‘well developed model of what innovation looks like as an organisational capability’. Investing in innovation is a strategic decision. Every business is different – a business exists in a unique context. Context in a dynamic world is constantly changing. Context changes the requirement for content and the process must continually be improved. Because of commoditisation and global competition, many companies believe innovation is critical to their future success. These companies must determine what exactly innovation is. Although the subject may be at the top of the agenda, many companies have a mistakenly narrow view of it. Many see innovation as synonymous with new product development or traditional research and development. Companies that do not see that innovation is a capability that must be developed and being innovative as a strategic decision that includes trade-offs are in peril.

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References Bhide, A.V. (2006) ‘Venturesome consumption, innovation and globalization’, Paper for a Joint Conference of CESIFO and the Center on Capitalism and Society, Venice, 21–22 July. Collins, J. (2001) Good to Great, New York: HarperCollins. Hamel, G. (2003) ‘Innovation as a deep capability’, Leader to Leader, Winter, No. 27. Hawawini, G., Subramanian, V. and Verdi, P. (2002) Is Performance Driven by Industry Factors? A New Look at the Evidence, Wiley InterScience, www.interscience.wiley.com. Hax, A.C. and Wilde, D.L., II (1999) ‘The delta model: adaptive management for a changing world’, Sloan Management Review, Vol. 40, No. 2, pp.11–28. Hayton, J.C. and Kelley, D.J. (2006) ‘A competency-based framework for promoting corporate entrepreneurship’, Human Resource Management, Vol. 45, No. 3. Henderson, B. (1989) ‘The origins of strategy’, Harvard Business Review, November. Joyce, W., Nitin, N. and Roberson, B. (2003) What Really Works: The 4+2 Formula for Sustained Business Success, New York: HarperCollins. Levit, T. (2002) ‘Creativity is not enough’, Harvard Business Review, August. Mintzberg, H. (1994) The Rise and Fall of Strategic Planning, New York: The Free Press. Mintzberg, H. (2004) Managers Not MBAs: A Hard Look at the Soft Practice of Managing and Management Development, San Francisco: Berrett-Koehler. Pfeffer, J. and Fong, C.T. (2002) ‘The end of business schools? Less success than meets the eye’, Academy of Management Learning & Education, Vol. 1, No. 1. Porter, M.E. (1980) Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York: The Free Press. Sawhney, M., Wolcott, R.C. and Arroniz, I. (2006) ‘The 12 different ways for companies to innovate’, Sloan Management Review, No. 3, pp.75–81.


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Entrepreneurs and branding in an environment of mass customisation and open innovation Khaled Hamid Department of Fashion Design and Merchandising School of Arts Virginia Commonwealth University Richmond, Virginia, USA E-mail: [email protected] Abstract: Recently, Mass Customisation and open innovation have emerged as new and attractive business concepts. They reinforced a trend of business models (and cultures) being shaped by new technologies while redefining the relationship between businesses and consumers in the process. Both concepts suggest a new paradigm that has a strong impact on the traditional product development cycle. But the implications go beyond that, as they reposition consumers in the development process of brands. The result is an equally strong impact on marketing principles that is worth further exploration. As a result, this new framework of ‘open sourced branding’, offers entrepreneurs and small business owners, as well as brand managers and marketers, a lot of new opportunities and challenges as they strive to compete. This paper aims at looking into the ‘brand’ concept under mass customisation and explores some of these new challenges and opportunities. Keywords: technology; Customisation; innovation.

entrepreneurs;

brands;

marketing;

Mass

Reference to this paper should be made as follows: Hamid, K. (2009) ‘Entrepreneurs and branding in an environment of mass customisation and open innovation’, Int. J. Entrepreneurship and Small Business, Vol. 7, No. 4, pp.457–465. Biographical notes: Khaled Hamid is an Assistant Professor at Virginia Commonwealth University in the USA. He has also lectured in undergraduate to MBA levels in Singapore and other parts of Asia in the areas of marketing, product development, strategic management and entrepreneurship. He has an extensive working experience with leading international organisations in USA, Europe and the Middle East in branding and marketing. He has submitted papers and presented in international conferences in Europe and Asia in the areas of branding, entrepreneurship and mass customisation. He is currently working on a book on fashion branding. His research interests are in branding, marketing and technology.

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Introduction

Amid a myriad of brands, advertising and marketing campaigns aiming at luring customers and attempting to dictate new trends, a new environment is shaping up, driven by a new culture of empowerment and the wealth of information that is Copyright © 2009 Inderscience Enterprises Ltd.

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repositioning customers in the product development process. The new environment of technological accessibility has not only given customers more choices, but most importantly, the tools to be more active than passive in the decision-making process to determine the shape and direction of his/her favourite brand rather then remain at the receiving end of the equation. In short, the new environment has simply redefined the roles of the players in the branding game. Businesses are facing a new reality whereby instead of dictating and sometimes manipulating, they have to negotiate, respond and share with consumers and outsiders what they have been fiercely protecting for years, such as the creative elements of their brands. Yet, the timing seems to be right for both sides. Consumers, on one hand, are looking for better options to express and satisfy their needs and get what they really want, and producers need to stay competitive, different and relevant to their customers. Brands are getting too similar and competing on the basis of product features alone is a short-term strategy, as features are easily and quickly copied. As a result, Mass Customisation (MC) has surfaced as a viable alternative. Although still in a somewhat early stage of adoption and with various degrees of successes, MC as well as Open Innovation (OI) have attracted great scholarly interest as viable solutions. Whereas most of the research work have either focused on the impact of MC on the production side of operations, such as operations management and inventory control or on technological applications, the implication on the marketing and branding aspects seems equally fundamental and worth further exploration. ‘Old school’ marketing strategies and principles may be deemed irrelevant and outdated in an environment where consumers ‘codevelop’ the brands. Accordingly, many of these principles need to be revisited, reexamined and probably redefined while creating new business realities with new opportunities and challenges for entrepreneurs and business owners.

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Mass customisation and branding

Piller (2005), a leading scholar on the topic, defines mass customisation as follows:1 “Mass customization refers to a customer co-design process of products and services which meet the needs of each individual customer with regard to certain product features. All operations are performed within a fixed solution space, characterized by stable but still flexible and responsive processes. As a result, the costs associated with customization allow for a price level that does not imply a switch in an upper market segment.”

In the above definition Professor Piller highlights a series of keywords (in italics) that characterise the concept. I would like to highlight as well the importance of being a ‘flexible’ and ‘responsive process’ as key elements to this paper’s topic. It is also important to highlight that MC, by definition, is a middle of the road solution between ‘mass production’ and ‘full-customisation’ (made-to-order) which is clearly stated above in being ‘performed within a fixed solution space’ (an element of mass production) while being ‘characterised by stable but flexible and responsive process’ (elements of full customisation). In reality MC is not a very new concept, yet it owes its current rise to new technological advances such as the internet, software development, web based applications, and telecommunication innovations, that are enabling customers to interact and integrate with the developing process and thus complete the circle for the model to

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function. As a result, we have seen various attempts for adopting the model at various levels of customer involvement that range from choosing or manipulating few features such as colours or minor details, to total control and the overtaking of the design process. Here are a few of examples of such operations: •

Threadless.com: probably one of the most successful examples offering mass customised t-shirts online

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Dell: mass customised computers and laptops

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MiAdidas: mass customised sport shoes for the Adidas brand

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PersonalNovel.de: an online company that offers customers the opportunity to customise novels.

Although the concept of ‘Open Innovation’ (OI) implies some differences to MC, it does share a lot of common ground and will be referred to in this paper as an application of MC. OI is characterised by group collaboration or community sourcing (a.k.a. crowd sourcing) as is seen in the case of the Linux based operating systems, Wikipedia.com, or Current TV which is a satellite TV network created by former US Vice President Al Gore which airs many viewer-created content submitted through the internet where it is chosen and voted for by its community of viewers. As the model of MC gains more acceptance and growth, the question remains on the extent of its implication on how a brand should be defined and treated in this new environment.

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Branding and mass customisation

There have been many ways to define the term ‘brand’ as we know it today. Yet I believe the following definition would capture the essence of the term: “A brand is a product (or service) with one or more distinct feature that allows it to compete and attract a target group of customers through a promise of value. The producers work on creating an identity to the brand with the help of attractive attributes such as a logo, a name, or a color in order to position themselves in a market. The essence of the brand is in the relationship it develops with its customers and the image it establishes in their minds while a brand’s long term survival is a function of innovation and consistency.”

The above definition brings forward few key terms for what branding is all about and they are: •

distinct features

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target customer

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a promise

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relationship

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consistency

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innovation

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image.

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We need to re-examine the above terms and their relevance in an environment of mass customisation and we shall start by the following hypothetical scenario: “Some soda drinkers (including the author) who would like to switch to a diet soda drink such as diet coke for example are held back by the difference in taste of the sugar free drink. Now let us assume that with the help of technological innovation a company like Coca Cola manages to develop a vending machine that allows customers to adjust the sweetness level of the coke to their taste so that each customer will still be getting a low calorie diet drink yet with an acceptable taste. While that would be a great application of mass customization it would raise a series of questions such as: How would we define diet coke now? And what does diet coke mean for each of its consumers? In essence, answering these questions highlights the paradigm shift of branding under mass customization.”

3.1 Distinctive features and microbrands By definition a Mass Customised brand (MC brand) is a brand where every consumer decides on the distinctive feature of his customised item. On the other hand, an open innovation environment is an environment of community sourcing whereby every new input might add to, or tweak an existing distinctive feature. In both cases, the end result is a variety of ‘distinctive features’ and variations of the ‘mother brand’. This variety of features ends up creating what we may call a series of ‘micro-brands’ where a micro-brand is a rather limited yet distinct version of the original one. This idea of a brand without a one distinctive feature might seem like a contradiction to what a brand is all about. Yet in reality: “the idea of having just one key benefit is neither a reflection of how products are invented nor really a reflection of how people choose, buy and appreciate them. It is mainly a requirement of a certain type of ‘hard sell’ advertising.” (Grant, 2006)

In addition, “the brand image approach was developed to suit the advertisers of its day: mass produced products, which required differentiation” (Grant, 2006). This has been how things worked in a mass produced environment which is obviously irrelevant in the new model. As a result, marketing and advertising strategies need to change in a way that is more responsive and accommodating to the new environment and the nature of the newly created micro-brands. Under MC, a brand is inherently differentiated and the sum of distinctive features created by the series of micro-brands do not qualify for the current ‘mass-produced’ ‘hard sell’ advertising strategies and marketing campaigns. There is a need for a more direct and focused approach to communication and marketing messaging as will be examined later.

3.2 Image and innovation An image is best defined as how customers envision the product to be. Under MC an image would seem to be strongly derived from the level of innovation and flexibility of the customer’s interactive experience more than from its distinctive features. Features are still relevant of course, but the level of integration, flexibility, and innovation of the platform would be of a higher relevance simply because features being an element of


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design are now under the users’ control and determined by the customer himself. So what the customer/user is really looking for from the other side is a suitable and innovative environment that would make the experience and process simpler and more effective. Is it easy to manipulate the brand? Does the platform or software offer necessary tools for manipulation? Does the system crash? Does the system offer a responsive and effective feedback mechanism? Such issues would be key elements in defining the branding experience and eventually determining the image. Thus we can say that whenever the customer’s intervention is high, an image tends to be more innovation-dependant while it is more features-driven where customer’s intervention is minimal. This would be clearly evident in the case of brands that posses some kind of a monopoly or a ‘secret’ formula as in the case of pharmaceutical products or in the case of Coke. These brands will be less susceptible to the customisation of their monopoly feature, which in return would remain the core of the branding experience. The Coke taste will remain an attractive feature as long as it is out of reach and cannot be manipulated.

3.3 The relationship redefined The most dramatic implication of these changes is the redefinition of the relationship between the producer and the customer and the role of each within. The new relationship is that of a ‘partnership’. This partnership changes the dynamics of brand development as the role of the producer shifts from a product maker to a ‘service provider’ whose major role as we mentioned, is to provide a platform and an infrastructure that is innovative and flexible for customers to interact and create their micro-brands. Within this framework the promise of consistency is an element of service; image is a function of innovation and the relationship is that of sharing rather than dictating. This by all measures is a major paradigm shift.

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The new brand

Putting the above elements in perspective, we could now revisit the above definition of ‘a brand’ and redefine it as follows: “A brand in a mass customized environment is a unique version of a branded product created through a partnership between a manufacturer and consumers where the manufacturer as a service provider, delivers shared infrastructure, and technology necessary for the user to co-design and define the desired features. A mass customized brand is inherently competitive, innovative, and positioned.”

The new definition highlights the new partnership relationship, the new role of the producer, and elements that differentiate an environment of MC. Viewing brands from that perspective reinforces the need for new marketing approaches and strategies in order for the brand to survive. Some of these new approaches will be referred to as we discuss the new opportunities the new models offer to entrepreneurs and business owners.

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Opportunities created for entrepreneurs in the new environment

Working within a framework of MC and open innovation creates great opportunities for entrepreneurs and small business owners on the verge of developing and introducing new brands to the market. Some of these opportunities are: •

The opportunity to outsource or invite outside input for certain functions such as design and creative work. It diminishes the need to possess certain technical or creative skills allowing for greater flexibility as well as redirecting resources to other aspects of operations such as production.

•

In an open innovation environment where a sourcing community is created (e.g., Wikipedia.com or Linux) the product is actually in a continuous state of innovation and development. This is a process that would otherwise cost a great amount of money, time, and research effort on the organisation’s part. It is interesting that innovation and the future development of the brand in this case is sponsored and crafted by the actual end user who possesses the direct need for the product, a situation that could hardly be imitated with any level of forecasting, market research or focus groups. It is an ideal situation where we get a flow of real solutions from ‘real’ users.

•

From a marketing perspective the model delivers a marketer’s dream come true where the end product is predetermined, pre-designed, and pre-demanded by the end user. Which might hypothetically mean that the producer is making a product that is pre-sold. The implications are obvious on the production and marketing sides. From a marketing perspective it also redefines the need for, and scope of, market research and forecasting measures as mentioned. In addition, it would redefine the scope and categorisation of market segmentation in favour for targeting a larger spectrum of smaller segments. The implication on cost reduction is easy to envision. It might also eliminate the need for mass-produced high budgeted marketing and advertising campaigns in favour for a more direct and focused messaging approach. Direct marketing, mobile marketing, and viral marketing (think Facebook.com) are all suitable alternatives to create ‘customised’ marketing strategies appropriate for these models. It even opens the door for what is referred to as ‘open-source marketing’. As with open innovation, under open source marketing consumers take over the marketing responsibility for the brand. Think of how file sharing software such as Kazaa and Napster were so popular and gained a great following without any major marketing activities from their creators. It was the enthusiastic community of users, through word of mouth, developing free plug-ins and skins to enhance the programmes’ usability and appeal and creating forums and online communities that created a marketing success story without relying on traditional methods of campaigning or advertising. In an article published online by Cherkoff on the topic of open source marketing, he referred to a couple of intriguing cases relevant to this issue. The first was an advertising video created by an outsider for Volkswagen’s (VW) Polo car and posted online. The ad was shocking, well made, and ended being “viewed by millions of people” (Cherkoff, 2005). Another example is an Apple iPod video that was created by a school teacher called George Masters in 2004 and as Cherkoff (2005) puts it:


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“….he (Masters) then shared the viral film with an online community of Apple fans expecting nothing in return, other than a little credibility from his peers……within a few days (the video) had been viewed more than 40,000 times by curious individuals. The quality of the ad was so good that many people presumed they were watching the output of a big ad agency.”

Given the above it is evident that open source marketing carries many of the characteristics discussed above in reference to MC and OI. On one hand it is an invitation to unlimited creative possibilities and opportunities for differentiation and on the other it is a revolt against old school marketing agencies. •

On the production side, the model is clearly a suitable platform for the concept of Just-in-Time, and thus delivers better inventory management and cost reduction benefits. In addition, the model could very well strive on a network of workshops to satisfy its low quantity ever changing products. Workshops and small business units should flourish under this environment creating new business opportunities for young entrepreneurs and smaller operations. It is worth mentioning here that there are examples of open-innovation opportunities on the production side as well such as Emachineshop.com where users can design and create various parts used in the production process such as; casting, cutting, and moulding, among others.

•

In a paper titled: ‘Does mass customisation pay? An economic approach to evaluate customer integration’ by Piller et al., the authors indicate that as customisation “is connected to the possibility of changing premium prices because of the added value of a customized solution meeting the specific need of a customer” such as “ higher set-up costs, cost for better qualified labour…and more complex and detailed quality control” these costs are ‘counter-balanced’ by efficiency in forecasting and product development, postponement of activities until an order is placed and better customer retention (‘higher switching costs for the customer’). In addition, a customer is usually involved in customisation with an expectation and willingness to pay a suitable premium for their new gains “that does not imply a switch in an upper market segment” (Piller et al., 2004)

•

As mentioned, MC creates value through economies of scope rather than the economies of scale principles associated with mass-production. Economies of scope create both revenue opportunities through incremental revenues and the adaptability and flexibility to pursue new and profitable channels.

•

The internet and online applications proved to be a good platform for customer input and interaction which diminishes (not necessarily abolishes) the need for other costly channels (e.g., brick and mortar retail outlets) as well as open the door for a wider integration among parties involved. In a way it is B2C meets B2B meets C2C meets C2B all in a one virtual environment.

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Challenges facing entrepreneurs in the new environment

•

The biggest challenge is the mindset change. Managers who are used to a culture of total control and a highly protective environment may not easily comprehend the possibility of letting an outsider take control, manipulate and ‘hijack’ a brand they

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•

The second challenge is ‘control’. In an open environment such as that created by MC and OI, possessing a level of control is not only challenging but necessary to maintaining the brand’s integrity. Wikipedia.com is an excellent example of such challenges. Wikipedia.com aiming at being the largest encyclopedia online allowed readers’ to freely contribute, update and amend any entry. Yet problems rose when participants contributed wrong or biased information. It was clear that a certain level of control was mandatory and Wikipedia.com responded by adopting a series of checkpoints that allow review of content (still by members) before being published. Control also refers to measures needed to manage the growing customer base and facilitate smooth feedback channels demonstrating quick response in order to maintain customer retention and long term loyalty.

•

Adopting MC is not an immediate guarantee for 100% sales. A good example is Threadless.com which allows customers to vote for T-Shirts that were designed by other members. Accordingly, production is based on popular votes. Yet popularity did not always reflect on actual sales numbers. Look-Zippy.com, a French site of a similar model developed a measure of control by which they post the selected models online for two weeks where customers could place their orders and then production follows.

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In conclusion

There is no doubt that technology has changed customers’ attitudes, and expectations. It has given them more choices and control in the decision making process, while redefining their relationship with organisations. As a result, organisations need to respond and rethink their strategies, structures, and develop new mental models in order to compete. The development of MC as an attractive model that could either complement existing activities or be adopted as an alternative is a manifestation of the culture and new world we live in. Every new model offers opportunities as well as challenges for innovative entrepreneurs. MC and open innovation offer many opportunities for competitiveness and growth that might have been otherwise too costly or hard to achieve. Control and mindset change prove to be the two major challenges to overcome. As with all new and ‘young’ models, a mechanism of self-tweaking backed with flexibility, imagination, and long term vision may be necessary to maintain growth and competitiveness.


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References Cherkoff, J. (2005) ‘What is open source marketing?’, www.webpronews.com/topnews/2005/02/ 04/what-is-open-source-marketing. Grant, J. (2006) The Brand Innovation Manifesto, West Sussex: John Wiley & Sons, Ltd. Piller, F. (2005) ‘Glossary: mass customization, open innovation, personalization and customer integration’, www.mass-customization.de/glossary.htm. Piller, F., Moeslein, K. and Stoko, C. (2004) ‘Does mass customization pay? An economic approach to evaluate customer integration’, Production Planning & Control, June, Vol. 15, No. 4, pp.435–444.

Bibliography Adamson, A. (2006) Brand Simple: How the Best Brands Keep It Simple and Succeed, New York: Palgrave Macmillan. Anderson, C. (2006) ‘The long tail: why the future of business is selling less of more’, Hyperion, New York. Clifton, R., et al. (2004) Brands and Branding, Princeton: Bloomberg Press. Perry, E. and Winsom, D. (2003) Before the Brand: Creating the Unique DNA of an Enduring Brand Identity, New York: McGraw-Hill. Seybold, P. (2006) Outside Innovation: How Customers Will Co-design Your Company’s Future, New York: Collins. Tapscott, D. (2006) Wikinomics: How Mass Collaboration Changes Everything, London: Penguin. Tseng, M. and Piller, F. (2003) The Customer Centric Enterprise: Advances in Mass Customization and Personalization, Berlin: Springer.

Note 1

For the sake of this paper I am focusing on the co-design process in reference to products.

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A comparison of spectators’ and franchise staffs’ perceptions on the effectiveness of the marketing techniques adopted by the Super Basketball League in Taiwan Steve Chen Morehead State University 201 Laughlin Health Building Morehead, KY 40351, USA E-mail: [email protected]

Ronald Dick* Duquesne University, USA E-mail: [email protected] *Corresponding author

Chie-Der Dongfang Soochow University, Taiwan E-mail: [email protected]

Pi-Yun Teng Orient Institute of Technology, Taiwan E-mail: [email protected] Abstract: This study examines and compares the spectators’ and franchise staffs’ perceived effectiveness of the marketing techniques adopted by the Super Basketball League (SBL). Because many marketing strategies of the National Basketball Association (NBA) have been practised in the SBL, the researchers further modifies and translates Dick and Turner’s (2005) questionnaire to assess the Taiwanese spectators’ perceptions toward the US marketing strategies. The developed questionnaire contains seven fixed-choice and 24 five-point Likert scale items. The factor analysis groups 17 of the 24 items into five categories: (1) Traditional Mass Media (TM), (2) Direct and Electronic Mailing (DEM), (3) Sales Promotion (SP), (4) Gifts and Hospitality (GH) and (5) Strategic Marketing (SM). The participants include 31 (n = 31) staff members and 703 (n = 703) on-site spectators, who were randomly chosen during three competitions. Females (60.5%) and students (72.8%) are the two major groups that comprise the participants. Descriptive analysis shows that more people obtained information about the games from television commercials (49.6%) or by word of mouth (37.9%). SM (M = 3.96, SD = .77) and TM (M = 3.92, SD = .66) were rated as more effective ways to reach the targets. GH and DEM seemed to be less effective. The results also indicate that significant differences exist in the perceived marketing strategies based on various demographic characteristics (p < .05). In Copyright © 2009 Inderscience Enterprises Ltd.

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general, females under 20 years old tended to rate TM as a more effective means than their male counterparts did. The younger students without a college degree considered DEM more effective. However, the franchise staffs did not value GH as effective as the students or other working adults did. In the meantime, the franchise staffs perceived SM more effective than the younger students did. A disparity was clearly found in the perceived marketing strategies between the franchise staffs and young students. For certain reasons, the use of technology in advertising and promotion was still not highly appreciated, based on the collected responses. In conclusion, the unique cultural aspects of Taiwanese basketball necessitating suggestions for adjusting the existing strategies, along with the limitations and concerns related to the study, will be discussed. Keywords: marketing techniques; basketball; ticket sales; promotional strategies. Reference to this paper should be made as follows: Chen, S., Dick, R., Dongfang, C-D. and Teng, P-Y. (2009) ‘A comparison of spectators’ and franchise staffs’ perceptions on the effectiveness of the marketing techniques adopted by the Super Basketball League in Taiwan’, Int. J. Entrepreneurship and Small Business, Vol. 7, No. 4, pp.466–477. Biographical notes: Steve Chen is an Assistant Professor in the Department of Health, Physical Education and Sport Sciences at Morehead State University, Morehead, Kentucky, USA. He currently serves as the Chair of Research Committee of Kentucky Association of Health, Physical Education, Recreation and Dance. Dr. Ronald Dick is an Assistant Professor in the School of Business at Duquesne University, USA. He was an Assistant Professor in Sport Management at James Madison University and an Associate Professor at the University of New Haven. He has an EdD from Temple University and an MBA and a BS from St. Joseph’s University. He has 13 years of experience in the National Basketball Association (NBA) with the Philadelphia 76ers and New Jersey Nets. He was the Assistant Dean at Marian College and the Assistant Athletic Director at the University of Houston. Chie-Der Dongfang is an Associate Professor of Soochow University in Taipei, Taiwan. He was one of the coaching staff of the Taiwanese National Team in 2006–2007. He was also the Most Valuable Player of the Chinese Basketball Alliance in its inaugural season. Pi-Yun Teng, is an Assistant Professor of the Orient Institute of Technology in Taipei, Taiwan. She had both played and coached for the Taiwanese Women’s National Team for several years.

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Introduction

Baseball and basketball are the two most popular spectator sports in Taiwan. Since the lockout of the Chinese Basketball Alliance (CBA) in 1999, the newly created semi-professional Super Basketball League (SBL) has emerged as the most competitive and skillful adult league in Taiwan. The SBL celebrated its third year anniversary in the

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2006 season. Currently the league is comprised of seven teams (Yulon Dinos, Dacin Tigers, VideoLand Hunters, Taiwan Beer, Bank of Taiwan, Yes&Yes Youmin and Eastern television Antelopes), which are all situated in the capital city, Taipei. The former CBA perennial power, Yulon Dinos, has captured the SBL Championship crown for three straight years. Although all SBL teams function independently in their finance and promotional activities, the operation of competitions and ticket sales are still managed under the control of the Chinese Taipei Basketball Association (CTBA), which is the governing body of Taiwanese basketball. In terms of the marketing and financial aspects, the SBL is in a critical stage and needs to drastically increase its attendance and ticket sales revenues. During the first three seasons, the average attendance of a game was less than 2000. Even though the average attendance occasionally reached 4000 or above during the playoffs and championship series, many regular season games had an average attendance less than 1000 (ESPNStar, 2003; Lee, 2006). At this point, the broadcasting fee is the primary revenue source allowing the SBL to survive. ESPN Taiwan spent a little more than US$1 million ($3,500,000 NT) for the third-season broadcasting rights (Chao, 2005). ESPN Taiwan was also recognised as the SBL’s sole official promoter of the league. However, debates, rumours and questions have constantly arisen concerning the proper amount to pay for the SBL broadcasting rights and who should be awarded the rights (Chao, 2005; Tu, 2004; Yeh, 2006). This further illustrates the importance of increasing ticket sales to keep the league self-sufficient. Despite the urgent need to increase ticket revenues, both the CTBA and the Executive Committee of the SBL have been heavily criticised for lacking creative marketing strategies to reach fans (Chao, 2005; Chiu, 2006; ESPNStar, 2003; Fu, 2006; Tu, 2004). Many reasons seem to contribute to this lack of effort and ideas for developing new marketing strategies. A few teams are semi-government-owned clubs. They would not have the marketing budgets to operate the marketing campaigns, nor do they have the marketing experts to guide the clubs’ public relations and advertising programmes. Many of the team staff members are either senior or mid-level managers of their parent companies. They often have no knowledge or background in the operation of sport competitions. All of the SBL games have been played in the arena of Taipei Physical Education College. This building is more than 40 years old with a capacity of 3500 people. For this reason, there is no attempt to monitor the designated home games for each team. Some of the franchise staffs believe the CTBA should be fully responsible for selling tickets and promoting the games because the ticket price is set by the CTBA. On game day, two different prices of tickets are sold at the gates. The face values of lower arena and upper arena tickets are about US$15 and US$10, respectively. Spectators can purchase advance tickets by phone or internet through the CTBA. The limit on advanced tickets to be sold is usually set at 1500. Thus, many fans have to line up for a long time to compete for tickets to playoff and popular rivalry games. When the CBA was established in 1995, many of its game rules and promotional activities imitated those of the National Basketball Association (NBA). It seemed logical for the CBA to follow what the NBA was doing because the NBA was the most popular and prominent professional basketball league in the world. Many SBL franchise staff members also adopt this concept. They believe if the league and the CTBA can implement more current NBA marketing strategies, ticket revenues should increase significantly. There is no need for them to ‘reinvent the wheel’. At this point, the


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marketing department of each team has only expended a minimum amount of effort researching the potential targets. Some of the popular promotional activities that have been done include ticket discounts for fan-club members, small complimentary ticket giveaways, and on-site souvenir giveaways. Star players occasionally attend some types of charity events or charity games that are mainly sponsored by non-profit organisations. Nevertheless, a league-wide public relations campaign or Strategic Marketing (SM) plan has still not been developed. If the league adopts more marketing strategies to boost ticket sales, what would be the most effective strategies for the franchise staffs to select? Will franchise staff decisions on the selected strategies match the preferences of the spectators and satisfy the needs of those people? This study examines and compares the spectators’ and franchise staffs’ perceived effectiveness of marketing techniques adopted by the SBL. The findings of the study will further help the league improve its marketing strategies for targeting potential fans and retaining loyal consumers.

2

Review of literature

As the world’s most popular basketball league, the NBA still faces the challenges of generating more ticket revenues. In the 1990s, popular NBA marketing practices such as sponsorship deals, promoting star players, and globalisation of the league had made the league successful (Schlossberg, 1996). Spoelstra (1993) also identified a number of other successful marketing concepts and techniques utilised by the NBA, including various game plans, the escalator theory, name capture, music concerts, theme evenings, and exchange games. In recent years, the NBA has focused its marketing effort on both the sale of season tickets and the promotion of single-game sales using computerised information systems and technology (Lombardo, 2003a; Lombardo, 2003b; Zwartynski, 1995). Variable ticket pricing has also emerged, showing great promise in generating additional revenues. Both the Chicago Bulls and Detroit Pistons introduced this method in the 2005 season and experienced an attendance growth (May, 2006). Mawson and Coan’s (1994) study was the pioneer in examining marketing directors’ perceived effectiveness of marketing strategies employed by the NBA. The authors surveyed 22 NBA directors of marketing using Hambleton’s (1987) Marketing Technique Questionnaire (MTQ) model. Marketing directors’ responses were further classified into two main categories (high and low) based on the attendance of teams. The only significant differences in ranking between the high and low attendance groups were newspaper advertising and strategic planning (both had higher means for low attendance teams). When Dick and Sack (2003) examined the NBA marketing directors’ perceptions of effective marketing techniques based on 21 techniques, it was found that many of the top-ranked techniques in Mawson and Coan’s study were no longer popular anymore. Dick and Sack asked the directors of marketing to add any other techniques not listed in the original 21 items. A list of an additional 33 new techniques including group ticket sales and community service projects resulted. The top five ranked strategies among those 54 items were: 1

group ticket sales

2

community service projects

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3

television advertising

4

mini packs (partial season tickets)

5

pricing strategies.

From a practical standpoint, if NBA marketing directors are using strategies that are considered to be ineffective by the attendees, teams are not optimising their sales because the attendees do not feel the utilised strategies increase their desire to attend games. In 2005, Dick and Turner followed up the study of Dick and Sack (2003). They attempted to determine if the selected 20 marketing techniques that NBA marketing directors viewed as valuable and useful were viewed in a similar fashion by attendees at NBA games. The shocking truth was that NBA directors of marketing and ticket holders significantly disagreed on the effectiveness of 15 of the 20 marketing techniques examined. In general, the directors had a higher rating on each of those 15 strategies than the 200 participative ticket holders. Former NBA executive Spoelstra (1997) stated, “Tickets are the lifeblood of professional sports” (p.59). The revenue from ticket sales can critically affect the survival of the SBL. At this point, there is no study that has been done examining the SBL franchise staffs’ perceptions of current marketing strategies. There is no information on how the fans value the marketing strategies that are preferred by the franchise staffs. For this reason, it is the researchers’ belief that understanding the fans’ responses toward the current marketing strategies is an urgent task that needs to be accomplished.

3

Methods

3.1 Subjects In order to examine and compare the spectators’ and franchise staffs’ perceived effectiveness of marketing techniques adopted by the SBL, the researchers surveyed 31 franchise staff members and 703 on-site spectators. In this study, the franchise staff members surveyed included team presidents, general managers, directors of public relations, and head coaches of all seven teams. Among the 734 surveyed, about 60% were female (n = 444). Nearly 74% of the participants were between 16 and 25 years old, meaning a majority of the spectators were high school and college students (72.8%; n = 534).

3.2 Instrument The researchers modified and translated Dick and Turner’s (2005) questionnaire to assess the Taiwanese spectators’ perceptions toward the US marketing strategies. The primary reason for adopting this questionnaire was the SBL staff members were familiar with the NBA marketing strategies and were willing to implement some of those strategies in Taiwan. Twenty-four marketing strategies were provided in this study after reevaluating Dick and Turner’s 54 listed strategies. These 24 strategies were reviewed by general managers of three SBL teams and two sport management professors in Taiwan. Participants’ responses on those 24 items yielded a high level of reliability (Cronbach’s alpha = .886). Factor analysis was also performed to enhance the validity of the survey items (see Table 3).


4

471

Procedures and data analysis

One thousand on-site spectators were randomly invited to participate in the survey during three competitions. In order to ensure a high turnout and attendance rate, each of the three games selected involved Yulon Dinos. Data were collected during the second and third week of February 2006. The three games were played on 2/12, 2/18, and 2/19. Participants were randomly picked by dance girls of the teams and five volunteers who administered the survey. Questionnaires were distributed during the media timeouts and halftime. In general, a participant took less than 10 min to complete the survey. Analysis of data was conducted in the first week of March 2006 by using the SPSS 12.0 statistical software program. Analysis of variance was the main statistical method utilised for comparing the differences between specified groups.

5

Results

In general, a few specific characteristics of the participants were easily concluded based on the survey responses. The majority of the participants were young females who studied in high schools or colleges. About 60% of the participants had experienced college education. In addition, more than 52% of the participants (n = 382) had attended more than five games. About 25% were first-time attendees. Most of the participants also came to the game with friends, such as classmates or colleagues at work (82.6%, n = 606). Television commercials and word of mouth were identified by the participants as the two primary methods for them to obtain information about upcoming schedules and events. For more detailed information on the popular methods for obtaining game information, please refer to Table 1. As for marketing strategies perceived to be the most effective by the spectators, the top three strategies were identified by similar percentages of spectators. In order, they were: 1

community services/projects

2

promotion of star player(s)

3

pre-game events packaged with the game.

Table 1

Methods for fans to obtain game information

Rank

Method

1 2

Television commercials Word of mouth

Percentage (%) 49.6 37.9

3 4

Newspaper CTBA official sites

35.7 31.3

5

Official team sites

28.4

6

Sport magazines

26.8

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Readers can find the participants’ top ten preferred marketing strategies in Table 2. Table 2

Top ten preferred marketing strategies (maximum score: 5)

Rank

Strategy

Score

1

Community service projects

4.09

2

Promotion of star player(s)

4.08

3

Pre-game event packaged with game

4.07

4

Television advertising

4.01

5

Variation pricing

3.98

6

Season ticket discount

3.97

7

In-arena public address announcements

3.94

8

Special events/programmes at games

3.93

9

Group ticket sales

3.91

10

Target market selection

3.84

Factor analysis was utilised to further categorise the 24 listed marketing strategies. This method helped the researchers better distinguish the participants’ preferences for different types of marketing strategies. It grouped 19 of 24 strategies into five categories. Those five factors yielded a total loading of .590. SM and TM were viewed as the most effective types of marketing. For the results of the break down of marketing styles, please refer to Table 3. Table 3

Results of factor analysis (grouping 19 of 24 strategies into five categories with a loading of .590)

Category

Score

% of variance

Strategic items

Strategic Marketing (SM)

3.96 + .77

9.3

Traditional Mass Media (TM)

3.92 + .66

16.5

Billboard, game announcement, newspaper, radio and television

Sales and Promotion (SP)

3.91 + .59

11.2

Public relations, group discount, package sales, season ticket and variation pricing

Gifts and Hospitality (GH)

3.65 + .84

10.4

Souvenirs, employee hospitality and grass-root events

Direct and Electronic Mailing (DEM)

3.36 + .73

11.6

E-mail blast, telemarketing and commercial fliers

Target marketing and promotion of star players

When differences in perceived marketing styles were compared based on the participants’ demographic characteristics, it was found that people who attended a different number of games did not vary their ratings of those five styles significantly. However, the under 20-year-old female spectators tended to rate TM as a more effective means than their male counterparts did (Wilk’s Lambda = 1.941, F(5, 733) = 1.93, p < .01). Participants with an education level of college degree or higher clearly rated DEM as less effective (M = 3.10 + .64, f(3, 733) = 4.195, p < .01). They also significantly rated SM as more effective (M = 4.19 + .75, F(3, 733) = 12.019, p < .01). On the contrary, high school


473

students and younger audiences tended to prefer DEM (M > 3.30), but not SM (M < 3.90). Franchise staff members did not rate GH (M = 3.16 + .79, F(2, 733) = 5.49, p < .01) and DEM (M = 2.99 + .70, F(2, 733) = 4.83, p < .01) as effective as the students (GH = 3.68, DEM = 3.92) or other working adults (GH = 3.64, DEM = 4.02) did. However, they perceived SM (M = 4.24 + .59) as more effective than the other two groups (M < 4.02).

6

Discussion and conclusions

In the study by Chen et al. (2003), young high school and college students made up more than 70% of the total audience. The composition of the spectators also contained a high percentage of female spectators (60%) and frequent attendees (those who went to games more than five times per year). This result is quite different from the composition of NBA attendances, which normally have a higher percentage of male fans and one-time attendees (Sport Business Research Network, 2005). The interesting fact is the composition of spectators in the Taiwanese basketball league seems to remain unchanged since the CBA era. Because the fan base is very unique, the marketing directors of the franchises and administrators of the CTBA must recognise the needs and impact that the young students and females may bring to the league. If any strategic marketing plans are developed, they must include the concerns of those unique fan groups as well. In this study, a disparity was clearly found between franchise staffs’ and young students’ perceived effectiveness of marketing strategies. About 71% of franchise staff members were male. The effective strategies that they tended to value were slightly different from the preferences of young students and females. The students and those with a college degree considered DEM more effective. More highly educated franchise staff members had a different viewpoint on the effectiveness of DEM. Franchise staffs also did not give as much value to GH as the students or other working adults did. Staff members also perceived SM as more effective. Because the franchise staff members are often the decision-makers in implementing new strategies, failing to see the needs of their consumers can potentially cause the franchise staffs to adopt ineffective strategies. This is a phenomenon that can be seen in the NBA, too (Dick and Turner, 2005). SBL staffs have to closely evaluate the impact of two categories of strategies, DEM and GH, for attracting young fans. Like many Chinese basketball fans, the Taiwanese fans still rely heavily on the traditional media, such as television and newspapers to obtain game information (Chen et al., 2005; Chen et al., 2003). However, for certain reasons, the use of technology in advertising and promotion still was not highly appreciated. In reality, the cost of advertising on television can be more expensive than direct and electronic mailing. According to Dick and Sack (2003), traditional media are also valued highly by NBA directors of marketing, probably because this strategy is easy to operate and does not require a lot of responsibilities from them. Sending mass e-mail and electronic advertisements to the students would seem to be a thrifty strategy. The students also appreciate this type of marketing strategy fairly well. As computer technology continues to evolve, more interactive communication can be created between the fans and franchises. Major professional leagues in America all aggressively seek opportunities to deliver their games via broadband streaming, internet,

474


satellite television, and wireless/mobile communication (Hu, 2001; Olsen, 2003; Umstead, 2006). By offering services through those advanced channels, the league certainly can provide more chances for exposure and convenience to its consumers. An increase of revenue through added subscriptions is often the result of this aggressive marketing plan. Although the present SBL market is not mature enough to offer online or wireless game deliverables, there is a great potential for growth in this domain. In the meantime, if the SBL decides to utilise advanced internet and wireless technology to interact with its fans, then the franchise staffs must also evaluate the young fans’ investment of time, cost of the electronic supplies, and potential monthly fees. Traditionally, teenage fans’ parents probably will not be pleased with their children spending a great amount of dollars and time browsing internets or playing with mobile phones for entertainment purposes. It is common to see NBA teams building luxury boxes and suites or setting up VIP sections to charge high prices for a selective group of wealthy fans. At this point, the current arena of Taipei Physical Education College certainly cannot accommodate this type of service because the city will not renovate the old arena to build new luxury suites. The season ticket plan and personal seat licensing could be workable or attractive. However, in order to execute those marketing campaigns, a definite home court system must be established from the current schedule. The number of designated home games for each team must fairly and equally be set up by the league, so the marketing department of each team can further manage pricing strategies and promotional activities independently. Since high school and college female students have been recognised as the ‘bread and butter’ of the league’s ticket revenues, the franchise staffs must understand whether or not these young consumers can afford to pay for the season ticket or personal seat license. This group of consumers normally does not generate much income. Their ability to pay is heavily dependent on how much their parents are willing to support. Therefore, the researchers believe introducing the mini-packages and special double-header discounts to attract family crowds would be a more practical choice than both aforementioned strategies. In general, while replicating NBA marketing strategies in Taiwan, it is crucial for the franchise staffs to consider the cultural, demographic, and economical differences between the US and Taiwanese fans.

7

Recommendations

Obviously, each team must continue its current public relations activities. Although there were a lot of young fans that came to the game with their friends, there were not as many who attended the game with their family members. It appears that the SBL fails to effectively target the parents of its primary spectator group. Creating a more family-oriented atmosphere to attract more parents attending the games should enhance league image and financial benefits for the teams. The SBL’s fourth season will begin in January 2007. The negotiation on the fee for broadcasting rights still absorbs the franchise managers’ attention. They do not seem to have extra energy and attention to devote to improving current marketing strategies. The researchers strongly believe this is a crucial moment for the SBL to change its focus. Together, the CTBA and the SBL must cooperate to create a year-round promotional campaign. Ticket sales are not merely a game-day task, and promotional activities do not just take place a week before the season opener. The SBL should think about how to


475

actively work with the Chinese Professional Baseball League (CPBL) to cross-promote basketball during the off-season. To maximise the ticket revenues, all teams should possess a common vision and share different ideas to target new fans and retain the loyal consumers. Achieving this goal would require a league-wide effort and high levels of coordination from all of the SBL teams and the CTBA. Some of the useful and logical practices may include: •

upgrading the current membership programme to better reward the fans

•

applying the practices of customisation to satisfy the needs of fans (e.g., online ticket ordering)

•

launching an informative official SBL website to serve the fans

•

utilising mass e-mail to communicate with the student fans

•

organising more camps, charity exhibitions, and community activities throughout the year

•

maintaining existing effective marketing practices, such as promoting star players, double-header discounts, and campus visits

•

experimenting with variable ticket pricing

•

approaching more community groups to attend the games and providing special benefits to those groups.

8

Limitations and concerns

Although the results of this study may generalise some useful conclusions for the league to improve its current marketing plan, there are a few limitations and concerns that must be addressed while interpreting the results. The participants were recruited on-site during three games that showcased Yulon Dinos. The process of selecting the participants did not completely follow the rule of randomisation. Technically, the researchers had randomly recruited the participants from a convenience sample. Bias responses may have existed due to the excessive concentration of one particular section of fans or loyal supporters of a specific team. In addition, the participants’ inputs would not fairly represent the perceptions of those who did not attend the games at all. In the future, it is recommended that the league implement electronic polls or surveys to solicit the opinions of those who did not attend the live games.

References Chao, H.T. (2005) Debates on the Fees of Broadcasting Right, http://www.libertytimes .com.tw/2005/new/nov/16/today-sp5.htm (retrieved 26 December 2006). Chen, C., Teng, P. and Chen, S. (2003) ‘The perceptions of onsite spectators on service quality and expectations at corporate basketball games’, Proceedings of the 2003 Recreation, Leisure, and Sport Management Conference, Taiwan, Vol. 1, pp.368–374.

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Chen, S., Zhang, L.F. and Chiou, T. (2005) ‘The spectators’ perceptions and expectations on the quality of competition and services of the arena at the corporate basketball games in the People’s Republic of China’, in B.G. Pitts (Ed.) Where Sport Marketing Theory Meets Practice: Selected Papers from the Second Annual conference of the Sport Marketing Association, Morgantown, WV: Fitness Information Technology, pp.9–18. Chiu, P.S. (2006) Something That Is More Important Than $130,000,000 NT, http://www.roundballcity.com/blogs/mustbeawinner/archive/2006/09/21/27989.aspx (retrieved 30 December 2006). Dick, R. and Sack, A.L. (2003) ‘NBA marketing director’s perceptions of effective marketing techniques: a longitudinal perspective’, International Sports Journal, Vol. 7, No. 1, pp.88–99. Dick, R.J. and Turner, B.A. (2005) ‘Are fans and NBA Marketing Directors on the same page? A comparison of value of marketing techniques’, Sport Marketing Quarterly, Vol. 16, pp.82–92. ESPNStar (2003) Marketing Strategies Must Be More Creative in Order to Stimulate SBL Ticket Sales, http://wwwespnstar.com.tw/StaticNews/2003-12-13/news67a3167.htm (retrieved 25 December 2006). Fu, D.R. (2006) NBA Is Getting More Flourish. SBL?, http://www.ck56.com/db/ archive/index/php?t-80418.html (retrieved 30 December 2006). Hambleton, T. (1987) ‘An analysis of marketing techniques of Division I institutions with high attendance revenue sports’, Unpublished Master’s thesis, University of Kansas, Lawrence, Kansas. Hu, J. (2001) Baseball Officials Plan Live Video Streaming, http://news.com.com/ Baseball+officials+plan+live+video+streaming/2100-1023_3-275123.html (retrieved 26 December 2006). Lombardo, J. (2003a) ‘NBA season tickets fall but gate climbs: marketers focus efforts on single-game, group sales’, Street & Smith’s SportsBusiness Journal, Vol. 5, No. 43, pp.1, 35. Lombardo, J. (2003b) ‘Teams share ideas on ticket sales: league effort aims to get teams working together to boost the number of season-ticket holders’, Street & Smith’s SportsBusiness Journal, Vol. 6, No. 15, p.19. Mawson, M.L. and Coan, M.S. (1994) ‘Marketing techniques used by NBA franchises to promote home game attendance’, Sport Marketing Quarterly, Vol. 4, No. 1, pp.37–45. May, S. (2006) ‘Variable ticket pricing and the effect on revenue within the National Basketball Association’, in B.G. Pitts (Ed.) Sport Marketing in the New Millennium: Selected Papers from the Third Annual Conference of the Sport Marketing Association, Morgantown, WV: Fitness Information Technology, pp.125–132. Olsen, S. (2003) Streaming Video Hits Prime Time, http:www/news.com/2100-1032-994814.html (retrieved 26 December 2006). Schlossberg, H. (1996) Sports Marketing, Cambridge, MA: Blackwell. Spoelstra, J. (1993) How to Sell the Last Seat in the House, Portland: S.R.O. Partners. Spoelstra, J. (1997) Ice to the Eskimos: How to Market a Product Nobody Wants, New York: Harper Business. Sport Business Research Network (2005) NBA Attendance: % by Frequency of Attending, http://www.morehead-st.edu:2272/sbr/research/research/cfm?subRID=526 (retrieved 26 December 2006). Tu, K. (2004) The Unforeseen High Tide: SBL Still Has a Long Road to Success, http://www.newtaiwan.com.tw/bulletinview.jsp?period=457&bulletined=20962 (retrieved 26 December 2006). Umstead, R.T. (2006) NBA Goes Lives on Broadband, http:www.multichannel.com/ article/CA6381161.html (retrieved 26 December 2006).


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Yeh, W.C. (2006) SBL Will Not Have Its Games in the New ETV Arena, http:vota/ ntua.edu.tw/tknews/034/sport/snewsasp?id=379 (retrieved 26 December 2006). Zwartynski, M.A. (1995) ‘Computerized information systems and their role in the sales process’, Sport Marketing Quarterly, Vol. 4, No. 2, pp.25–30.

Bibliography Chu, Y.S. (2006) How Much Worth Is SBL?, http:www/roundballcity.com/blogs/blog/ archive/2006/09/24/28856.aspx (retrieved 25 December 2006). Cohen, A. (2001) ‘Ticket to the future: although many systems providers have come and gone in the past two years, web-based innovations promise to transform the ticketing industry’, Athletic Business, Vol. 25, No. 9, pp.55–56, 58–61. Lee, S.D. (2005) ‘Integrated marketing communication in sports channel – a case study of ESPN Taiwan’, Unpublished Master’s thesis, National Taiwan Normal University, Taipei, Taiwan. Lee, Y.C. (2006) SBL Is Getting ‘Cold’, Colder Than the Winter Chill, http://yam.udn .com/yamnews/daily/2441093.shtml (retrieved 13 January 2007). Lei, W.G. (2005) ‘An analysis of the STP marketing strategy and business philosophy of the Brother Elephants Professional Baseball Club’, Kinesiologia Slovenica, Vol. 11, No. 2, pp.33–41. Lombardo, J. (2002) ‘A wizard helps change NBA’s fortunes: ticket sales, ratings rise in year Jordan returned to league’, Street & Smith’s SportsBusiness Journal, Vol. 4, No. 53, pp.1, 44. Sun, C.H. (2005) SBL Is Getting Hot: Ticket Revenues and Viewership Show Steady Increase, http:sports.yam.com/special/sbl/show.php?id=0000026978 (retrieved 25 December 2006). Yung, Y.M. (2004) ‘An empirical study on participative motivation and participative behavior of the Super Basketball League spectators’, Unpublished Master’s thesis, Fu Jen Catholic University, Taipei, Taiwan.

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Building a sense of community through sport programming and special events: the role of sport marketing in contributing to social capital Eric C. Schwarz Department of Sport Business and International Tourism Saint Leo University P.O. Box 6665/MC2067 Saint Leo, Florida 33574, USA Fax: 1–352–588–8912 E-mail: [email protected] Abstract: The role of sport marketing in contributing to social capital is derived from the historical relationship of marketing methods and the social sciences. Examples can be found in psychology (attitudes, consumer behaviour, motivation, participation levels, perceived value, perceptions, satisfaction levels), sociology (ethics and morals, ethnicity, gender equity, globalisation, performance enhancement, politics, race, social class and setting, violence and deviance), economics (accounting, asset markets, consumption levels, investments in sport products, labour equilibrium, pricing) and anthropology (cultural identity, ethnography, history of sport, human development and movement, rituals). In addition, market research validates most of these activities and the advertising of sport is related to many of the creative arts. The goal of this paper is to take a look at how marketing seems, in most cases, to have moved away from the social sciences into the business realm by bringing awareness to the historical relationship by articulating the role sport marketing plays in contributing to the social psychological concepts of ‘social capital’ and ‘sense of community’. Keywords: social capital; ‘sense of community’; sport marketing; social sciences; sport programming; special events. Reference to this paper should be made as follows: Schwarz, E.C. (2009) ‘Building a sense of community through sport programming and special events: the role of sport marketing in contributing to social capital’, Int. J. Entrepreneurship and Small Business, Vol. 7, No. 4, pp.478–487. Biographical notes: Dr. Eric C. Schwarz is an Associate Professor of Sport Business within the School of Business at Saint Leo University, USA. Previously, he served over eight years as a member of the sport management faculty in the School of Business, Management, and Professional Studies at Daniel Webster College (NH), USA with additional responsibilities as the Programme Director for the MBA in Applied Sport Management. During the 2006–2007 school year, he was on sabbatical leave, serving as a Visiting Senior Lecturer and Research Fellow at the University of Ballarat in Australia. In addition to his numerous presentations and publications around the world, he is the author of Advanced Theory and Practice in Sport Marketing, published by Butterworth-Heinemann/Elsevier in February 2008.


Building a sense of community

1

479

What are ‘social capital’ and a ‘sense of community’

Social capital is the concept that membership of a social group grants requirements, responsibilities, and benefits on individuals (Hawe and Schiell, 2000; Portes, 1998; Wall et al., 1998). The types of social capital most commonly focus on three areas: involvement in social networks; engagement with others through informal, social activities; and memberships with a group, association, or organisation (Putnam, 2000). Social capital is dependent on a number of multidimensional and culturally specific factors centred on specific norms of behaviour, networks, and organisations that characterise a given setting, the people within that setting, and events that take place over time (Silva et al., 2007). The ultimate goal of social capital is to enhance the quality of life as a result of positive outcomes through interactions with others. Social capital is a social science concept that traces its origins back to sociology and economics. A sense of community is an experientially based concept that focuses on the interrelationship and interdependence of individuals in a specific setting (Schwarz and Tait, 2007). The most common type of community is based on geographic location, but may also include membership in a group, or individuals who share similar beliefs, behaviours, characteristics and/or values. Sense of community is difficult to pinpoint as it is an intangible concept, but it can often be interpreted in terms of other measurable terms. For example, the size of the community directly affects sense of community – an urban community is defined by its sub-communities, while a rural community literally defines the community. Sport is any activity, experience or business enterprise that focuses on fitness, recreation, athletics or leisure (Pitts et al., 1994). It does not always have to be competitive, and participants do not have to have specialised equipment or a set of rules (Parks et al., 2007). In general, the term ‘sport’ is an all-inclusive term covering all aspects of the field, whereas the term ‘sports’ tends to involve a compilation of distinct activities. Many concepts, functions, and activities are an integral part of social capital and play a significant role in defining and developing a sense of community. Sport is one of the most recognisable contributors, but it is also important to recognise other event associated activities including festivals, arts, recreation, tourism, and leisure. However, prior to truly understanding how the sport marketing and management of these activities play a role in building a sense of community and contribute to social capital, we first must understand the historical foundations of community studies rooted in the extensive history of traditional sociology and the social sciences.

2

History of community studies

One of the earliest recognised and most influential studies was the Chicago School. Emerging from the University of Chicago, the body of work was two-fold. In the initial study during the 1920s and 1930s, researchers investigated urban sociology in terms of the urban environment by combining traditional sociological theory with ethnographic fieldwork. The second study, which took place after World War II, focused on utilising field research combined with symbolic interactionism. The researchers’ overall goal was gauge social relations in the city of Chicago by using the city as a social laboratory (Pfohl et al., 2006).

480

E.C. Schwarz

Another significant investigation was the Middletown Studies of the 1920s through to the Great Depression. This was an in-depth series of three field studies that focused on the city of Middletown, Indiana as representative of a typical, small, urban centre. The goal of the studies was to discover the most significant cultural norms, and hence better understand social change. The studies focused on the major aspects of social life including work, home and family, leisure time, government and community, and religion (Hoover, 1989; Lynd and Lynd, 1937; Lynd and Lynd, 1956). There have been numerous other studies and theories developed since the Chicago School and Middletown Studies that have focused on various aspects of community life. Many of those studies focused on the concept of sense of community. One prominent theory was developed in the mid-1970s was that of Sarason’s (1974) and his definition of psychological sense of community: “the perception of similarity to others, an acknowledged interdependence with others, a willingness to maintain this interdependence by giving to or doing for others what one expects from them, and the feeling that one is part of a larger dependable and stable structure.”

Another theory was presented by Gusfield (1975) where community was classified as two dimensional: territorial and relational. Territorial focused on the physical location of the community whereas relational focused on the nature and quality of relationships. This was further elaborated upon by Riger and Lavrakas (1981) to be defined as physical rootedness and social bonding. While these previous studies provided a foundation for understanding communities and building senses of community, the most widely accepted theory of sense of community is that of McMillan and Chavis (1986). They propose that sense of community is composed of four elements: 1

membership in the specific community

2

influence

3

integration and fulfilment of needs

4

shared emotional connectedness.

Membership in the specific community includes the concepts as boundaries (language, dress, ritual, etc.); emotional safety and security; a sense of belonging and identification, personal investment in the community; and a common symbol system (name, title, logo, landmark, etc.). Influence is where individuals believe they have influence in the direction of the community, and the belief that the cohesiveness of the community is a factor of having influence over the individual members. Integration and fulfilment of needs involves members of community being rewarded for their participation in relation to their needs, their desires, and what is valued by both the individual member and the community. Shared emotional connection is the most involved aspect of sense of community according to McMillan and Chavis (1986), as they articulated seven features of emotional connection that create a sense of community: 1

Contact hypothesis: the theory that the level of closeness between people is directly proportional to the level of personal interaction of members within the community.

2

Quality of interaction: the direct effect members of a community have on each other.


481

3

Closure to events: the concepts of reducing vague and unclear interactions to ensure that tasks are completed and ensure group cohesiveness takes place.

4

Shared value event hypothesis: creating group bonds as a function of a common event (not always positive in nature, such as a crisis).

5

Investment in the community: the level of involvement and the relationship to perceived importance of the community of individuals.

6

The effect of honour and humiliation on community members: the public appearance of individuals to other community members – if they have been honoured, they will feel more drawn to the community; if they have been humiliated, they feel less appeal to belonging to that community.

7

Spiritual bond: the most difficult feature to measure because it is often beyond a physical or emotional connection to a community – it can best be described as the transcendental belief of the community above all others. •

An example might be someone who grew up in a rural town in the USA but now lives in a larger city such as Boston, New York, Chicago, or Los Angeles. Although they physically live in the community of the city, the individual always refers to being from that rural town, and always has a transcendental belief that they will always be a part of that rural community.

One of the most recent studies focuses on a theory of Community-based Enterprise (CBE). CBE involves a community acting cooperatively as both entrepreneur and enterprise in pursuit of the common good by creating and operating a new enterprise embedded in its social structure, and managing and governing in such a manner that strives to attain the economic and social goals of a community, resulting in sustainable individual and group benefits over the short and long term (Peredo and Chrisman, 2006). A significant foundation of CBE is the concepts of embeddedness and social networks, resulting in the creation of social capital. Embeddedness acknowledges that action is embedded in the structures of social relations (Razin, 2002), and social networks are community-based structures that are developed through investment strategies centred upon the institutionalisation of group norms and values, and the formalisation of networks (Misener and Mason, 2006; Portes, 1998). The resulting social capital comes from the reciprocal relationships embedded with the social networks (Misener and Mason, 2006). This dependence on social capital is central to building a sense of community because the community itself is often the major and most valuable asset of a CBE. This is because an effective community-based enterprise requires an availability of community skills, a multiplicity of community goals, and a realisation that success or failure is fully dependent on community participation (Peredo and Chrisman, 2006).

3

Relationship of sense of community and social capital to sport

As a result of the various community studies and research, sense of community seems to be a strong concept in the value and beliefs systems of societal members, and social capital is a major influence that builds senses of community. As related to sport, one of the major areas of study where social capital has been researched is through health

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promotion. In their article on social capital and health promotion, Hawe and Shiell (2000) surmised that the concepts of power within social environments, building relational ties between members of communities, creating opportunities for empowerment and capacity building by individuals within communities, and working together to create ‘healthy’ public places and communities, are all the result of effective management of social capital. Sport, as an extension of health promotion activities, create connections between individuals and the networks, norms, and trust that arise from those connections (Griswold and Nichols, 2006; Putnam, 2000). As such, social capital as related to sport builds on three main areas: civic engagement, informal social engagement, and tolerance combined with trust (Griswold and Nichols, 2006). Civic engagement means working to make a difference in the civic life of communities by developing the combination of knowledge, skills, values and motivation to make a difference. In addition, it means promoting the quality of life in a community, through both political and non-political processes. Individuals who are morally and civically responsible are recognised as being a member of a larger social fabric and therefore considered social problems to be at least partly their own. Members of communities who are civically engaged are willing to see the moral and civic dimensions of issues, to make and justify informed moral and civic judgements, and to take action when appropriate (Ehrlich, 2000). Informal social engagement is defined as continuous interactions that occur between individuals and groups as a result of a common association. The associations could be as a result of social networks, common interests, attendance at similar activities, or almost any situation that brings people together. Tolerance combined with trust is simply the concept of being able to accept the individual differences of people, communities and activities, while believing in the quality of the relationships created through social capital. The ultimate goal of social capital is to enhance the quality of life as a result of positive outcomes through interactions with others. This is articulated in social capital theory, where it is hypothesised that individuals gain access to social capital through membership in networks and social institutions to maintain or improve their position within a specific community. Social capital theory provides an important conceptual framework between the attributes of individuals and their immediate social situation, and provides a link between social influences and developmental outcomes (Furstenberg and Hughes, 1995; King and Furrow, 2004). The application of social capital theory can be articulated through sport programming and special events through the formation of specialised social networks. These specialised social networks are centred on three behavioural factors: socialisation, involvement, and commitment. Socialisation is defined as the process by which individuals acquire attitudes, values, and actions which are appropriate to members of a particular culture. In sport culture, we look at the process by which individuals develop and incorporate skills, knowledge, attitudes, and items/equipment necessary to perform sport roles (Schwarz and Hunter, 2008). Socialisation in sport demands some type of involvement, which is defined as creating a close connection with something. Involvement in the sport culture is as easy as ABC – affective is the attitudes, feelings and emotions directed towards an activity; behavioural are the actions or reactions directly related to the internal and external stimuli an activity provides; and cognitive is the process of acquiring knowledge about an activity (Schwarz and Hunter, 2008).


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Commitment is the process by which an individual is emotionally or intellectually bound to a course of action. In sport culture, commitment refers to frequency, duration, and intensity of involvement in a related activity. Programme and event managers must understand the thought processes of individuals it relates to concepts such as willingness to spend their valuable discretionary money, time, and energy (Schwarz and Hunter, 2008). One of the most prevalent social networks integral to the operation of sport programming and special events, and hence is crucial to the building of a sense of community through these activities, is sport volunteerism. Sport volunteerism involves individuals who chooses to contribute their time, skills, and experience, for no payment (other than possibly reimbursement for out-of-pocket expenses), to benefit the community (Australian Sports Commission, 2000). In addition, people volunteer for personal satisfaction, because they want to help others and do something worthwhile, or they have a desire for involvement as a result of personal or family association (Australian Bureau of Statistics, 2007). As a result of this social network, there is a link between volunteerism and social capital. However, research (Harvey et al., 2007) shows that existing relationships between social capital and volunteerism are related mostly to long-term volunteer involvement – individuals involved in short-term volunteering tends to emphasise the immediate advantages of this involvement rather than the long-term, intangible consequences. Therefore, long-term motivation and involvement is more likely to engage individuals in actions that contribute to the development of social capital (Harvey et al., 2007). Sport programming and special events serve an integral role in the development of community networks and social capital (Misener and Mason, 2006), which serves a role in the formation of regional identity, and expands the further development of social networks (Raagmaa, 2002). These expanded social networks then provide social support, self-esteem, identity, and perceptions of control (Cattell, 2001; Cohen and Syme, 1985), all of which are integral components to increasing the level of participation in social activities by individuals within the community setting (Cattell, 2001). In order to build a sense of community as related to sport activities, social capital needs to provide the glue that binds the community together in collective action, and the gears to direct community members towards participation (Krishna, 2002). According to Misener and Mason (2006), this can be best accomplished by adhering to the following propositions: •

community values should be central to all decision-making processes

•

various stakeholders, particularly community interest groups, should be involved in strategic activities related to events (i.e., bid process, management, legacy)

•

collaborative action should empower local communities to become agents of change

•

open communication and mutual learning throughout strategic activities must be maintained to minimise power brokering.

So how do we move forward? One way is to take a look at foundational concepts inherent to the theory and practice of sport marketing.

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The role of sport marketing in contributing to social capital

There has been a long tradition of communities using and devising [sport] activities as opportunities for social and commercial exchange (Picard and Robinson, 2006). The foundation for this social and commercial exchange is most often articulated through sport marketing and management efforts, especially through the mass media and via managerial performance. With regard to mass media, there are a number of issues that must be realised by communities when getting the message out about activities. First is the fact that there is currently a shift towards increased use of new media. Effective use of new media including multimedia, computer technology, and digital media is crucial to attracting the younger generation, but it is still important to continue utilising the traditional media outlet including print media (newspapers) and broadcast media (radio and television). This is defended by research that shows that older people are more reliant on the media medium they developed a connection with during their youth (Jung et al., 2001; Shah et al., 2001). Therefore older adults (55+) tend to be more reliant on print media, young and middle adult aged (25–55) adults gravitate towards broadcast media, and youth (under age 25) tends to get their information from the internet and other new media sources (Jung et al., 2001). The failure to consider how people use media will likely lead to a lack of communication with community members, decrease participation in recreation and arts programmes, negatively affect the success of events and festivals, and decrease the level of sense of community. In a study conducted by Schwarz and Tait (2007), the importance of communication to and from communities; facility, event, and programme maintenance and development; support for volunteers; and administrative expertise are integral to contributing to social capital, building senses of community, and the management of sport programming. Of these four areas, the biggest concern is communication. This is where sport marketing can play a significant role. Regardless of the type of organisation or location, a lack of communication can only lead to problems. The design of an integrated sport marketing communications plan is important to articulate organisational goals with the philosophy, mission, and vision of the sport organisation. Those goals must be communicated to key target audiences in measurable terms through a list of objectives, which are the individual benchmarks that need to be accomplished and communicated to reach the goal. This includes contacting all members of the sport organisation (internal and external) through pertinent media outlets (print, radio, television and internet) and internal promotional opportunities (websites, bulletin boards, newsletters, and notice boards). These increased sport marketing communication efforts should not only increase awareness, but also increase the number of attendees and volunteers for sport activities. While the creation of an integrated sport communication plan seems like a complex and time consuming process, the benefits far outweigh the pitfalls. An efficient and solid integrated sport marketing communications plan will allow managers to spend less time trying to rectify problems, provide stakeholders with a greater awareness of events, and to more effectively build brand equity for each event. Sport marketing efforts provides a means to gain a better understanding of the sport consumer through the efficient and effective application of sport marketing research efforts, the implementation of a sport marketing information system, and the evaluation of sport marketing behaviour. This information is then utilised to deliver sport programming and special events through sport marketing logistics, including sport


485

product and service management, sales management, and purchasing and supply chain management. Getting the information out about sport programming and special events is implemented through promotions, advertising, and sponsorship. While many of these sport marketing efforts can provide a positive contribute, problems can arise that impact the growth of social capital and negative affect the development of senses of community. These issues include the struggle by sport organisations to utilise the knowledge of customers acquired through sport marketing efforts to position their brands, their inability to put their brands to work beyond the traditional media, and the failure to create brand acceptance and understanding throughout the individual sport organisation.

5

Recommendations and suggestions for future research

Research shows that sport-related events and activities do contribute to social capital and a sense of community (Schwarz and Tait, 2007). However, as noted in the review of literature, to truly understand whether an activity contributes to a sense of community, you would have to either be a part of that community, or be engaged with that community. This has been most often achieved as a result of marketing research via field studies. While field studies seems to be most effective, they are often cost and time ineffective because: •

the amount of time needed to engage with a specific community is high

•

the number of locations that could be researched domestically, internationally, and globally is endless

•

the number of researchers needed to accomplish the necessary research can be boundless.

This is great news for researchers since there seems to be a limitless opportunity to conduct research – as long as they have the resources available. Each additional study connecting the relationship between social capital and the concept of sense of community further advances this unrepresented area of sociological research as related to sport marketing and management. These marketing research opportunities can focus on a multitude of areas including analyses of demographics, geographics, psychographics, and socioeconomics; cultural diversity, accessibility, and infrastructure availability assessments; and economic impact studies. In addition, sport marketing and management consultancies focusing on facility, event, and volunteer management; and marketing plan development and implementation, can further advance the information available to determine the level of sport programming and special events desirable to contribute to social capital and build a sense of community.

6

Conclusion

The history of marketing, and hence sport marketing, is grounded in sociology and the social sciences. However, in many cases, marketing and sport marketing has moved away from the social sciences into the business realm. There are many opportunities to return to this historical association to expand the scope of sport marketing beyond ‘traditional’

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and ‘alternative’ sport. In addition, there are significant opportunities to expand into areas of ‘non-traditional’ sport-related activities including recreation, arts, festivals, and other leisure activities. The reality is that in order for these concepts to have a place in the mainstream foci of sport marketing, additional research, experiential learning projects, and service learning opportunities need to focus on enhancing social capital, building senses of community, and expanding the image of under-represented leisure opportunities.

References Australian Bureau of Statistics (2007) ‘Voluntary work, Australia’, http://www.ausstats.abs.gov .au/ausstats/subscriber.nsf/0/C52862862C082577CA25731000198615/$File/44410_2006.pdf (retrieved 19 December 2007). Australian Sports Commission (2000) ‘Club development network – volunteer management module’, http://www.ausport.gov.au/clubs/volunteer_club_mngmt.asp (retrieved 13 February 2007). Cattell, V. (2001) ‘Poor people, poor places, and poor health: the mediating role of social networks and social capital’, Social Science and Medicine, Vol. 52, No. 10, pp.1501–1516. Cohen, S. and Syme, S. (1985) Social Support and Health, Toronto: Academic Press. Ehrlich, T. (2000) Civic Responsibility and Higher Education, Phoenix: Oryx Press. Furstenberg, F.F. and Hughes, M.E. (1995) ‘Social capital and successful development among at-risk youth’, Journal of Marriage and the Family, Vol. 57, No. 3, pp.580–592. Griswold, M.T. and Nichols, M.W. (2006) ‘Social capital and casino gambling in US communities’, Social Indicators Research, Vol. 77, No. 3, pp.369–394. Gusfield, J.R. (1975) Community: A Critical Response, New York: Harper and Row. Harvey, J., Levesque, M. and Donnelly, P. (2007) ‘Sport volunteerism and social capital’, Sociology of Sport Journal, Vol. 24, No. 2, pp.206–223. Hawe, P. and Shiell, A. (2000) ‘Social capital and health promotion: a review’, Social Science and Medicine, Vol. 51, No. 6, pp.871–885. Hoover, D.W. (1989) ‘Changing views of community studies: Middletown as a case study’, Journal of the History of the Behavioral Sciences, Vol. 25, No. 2, pp.111–124. Jung, J.Y., Qiu, J.L. and Kim, Y.C. (2001) ‘Internet connectedness and inequality: beyond the “divide”’, Communication Research, Vol. 28, No. 4, pp.509–537. King, P.E. and Furrow, J.L. (2004) ‘Religion as a resource for positive youth development: religion, social capital, and moral outcomes’, Developmental Psychology, Vol. 40, No. 5, pp.703–713. Krishna, A. (2002) ‘Enhancing political participation in democracies – what is the role of social capital?’, Comparative Political Studies, Vol. 35, No. 4, pp.437–460. Lynd, R.S. and Lynd, H.M. (1937) Middletown in Transition: A Study in Cultural Conflicts, New York: Harcourt, Brace and Company. Lynd, R.S. and Lynd, H.M. (1956) Middletown: A Study in American Culture, New York: Harvest Books. McMillan, D.W. and Chavis, D.M. (1986) ‘Sense of community: a definition and theory’, Journal of Community Psychology, Vol. 14, No. 1, pp.6–23. Misener, L. and Mason, D.S. (2006) ‘Creating community networks: can sporting events offer meaningful sources of social capital?’, Managing Leisure, Vol. 11, No. 1, pp.39–56. Parks, J.B., Quarterman, J. and Thibault, L. (2007) Contemporary Sport Management, 3rd ed., Champaign, IL: Human Kinetics.


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Peredo, A.M. and Chrisman, J.J. (2006) ‘Toward a theory of community-based enterprise’, Academy of Management Review, Vol. 31, No. 2, pp.309–328. Pfohl, S., Van Wagenen, A., Arend, P., Brooks, A. and Leckenby, D. (2006) Culture, Power, and History: Studies in Critical Sociology, Leiden, Boston: Brill. Picard, D. and Robinson, M. (2006) Festivals, Tourism and Social Change – Remaking Worlds, Clevedon, UK: Channel View Publications. Pitts, B.G., Fielding, L.W. and Miller, L.K. (1994) ‘Industry segmentation theory and the sport industry’, Sport Marketing Quarterly, Vol. 3, No. 1, pp.15–24. Portes, A. (1998) ‘Social capital: its origins and applications in modern sociology’, Annual Review of Sociology, Vol. 24, pp.1–24. Putnam, R. (2000) Bowling Alone: The Collapse and Revival of the American Community, New York: Simon and Schuster. Raagmaa, G. (2002) ‘Regional identity in regional development and planning’, European Planning Studies, Vol. 10, No. 1, pp.55–76. Razin, E. (2002) ‘The economic context, embeddedness and immigrant entrepreneurs’, International Journal of Entrepreneurial Behaviour and Research, Vol. 8, Nos. 1–2, pp.162–167. Riger, S. and Lavrakas, P.J. (1981) ‘Community ties: patterns of attachment and social interaction in urban neighbourhoods’, American Journal of Community Psychology, Vol. 9, No. 1, pp.55–66. Sarason, S.B. (1974) The Psychological Sense of Community: Prospects for a Community Psychology, San Francisco: Jossey-Bass. Schwarz, E.C. and Hunter, J.D. (2008) Advanced Theory and Practice in Sport Marketing, Oxford: Butterworth-Heinemann/Elsevier. Schwarz, E.C. and Tait, R. (2007) ‘Recreation, arts, events and festivals: their contribution to a sense of community’, Rural Society, Vol. 17, No. 2, pp.125–138. Shah, D.V., McLeod, J.M. and Yoon, S.H. (2001) ‘Communication, context, and community – an exploration of print, broadcast, and internet influences’, Communication Research, Vol. 28, No. 4, pp.464–506. Silva, M.J., Harpham, T., Huttly, S.R., Bartolini, R. and Penny, M.E. (2007) ‘Understanding sources and types of social capital in Peru’, Community Development Journal, Vol. 42, No. 1, pp.19–33. Wall, E., Ferrazzi, G. and Schryer, F. (1998) ‘Getting the goods on social capital’, Rural Sociology, Vol. 63, No. 22, pp.300–322.

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Book Review: International Entrepreneurship in Family Businesses by J.C. Casillas, F.J. Acedo and A.M. Moreno Reviewed by Vanessa Ratten A.J. Palumbo School of Business Administration Duquesne University, USA E-mail: [email protected] Published 2007 by ISBN: 978 1 845428792

Edward

Elgar,

Cheltenham,

UK.

338pp.

Keywords: book review. Reference to this book review should be made as follows: Ratten, V. (2009) ‘International Entrepreneurship in Family Businesses by J.C. Casillas, F.J. Acedo and A.M. Moreno’, Int. J. Entrepreneurship and Small Business, Vol. 7, No. 4, pp.488–489. Biographical notes: Vanessa Ratten is an Assistant Professor at the A.J. Palumbo School of Business Administration at Duquesne University, USA. Her main research interests are international entrepreneurship, technology innovation and strategic management. She has presented and published her work in numerous peer-reviewed academic journals and at professional conferences. She has published in journals, including the European Journal of Innovation Management, the Journal of High Technology Management Research, the International Journal of Entrepreneurship and Small Business and the Asia Pacific Journal of Marketing and Logistics. She has co-edited a research book on European entrepreneurship and is currently finishing a co-edited research book on Asian entrepreneurship. She is currently working on research that examines the relationship between entrepreneurship and sports marketing. In particular, she is interested in the roles of sustainability, corporate social responsibility and social entrepreneurship in the sports and technology industries.

The research areas of international entrepreneurship and family business have grown significantly during the past decade. Hence, it is timely that a book devoted to both research areas has been published. The book titled International Entrepreneurship in Family Businesses is a welcome addition to the literature that exists in the international business and entrepreneurship field. The book is written by three authors all from the University of Seville in Spain who are well recognised experts in the field of family management studies. The book is cleverly divided into four parts (introduction, antecedents, determinants of international entrepreneurship of family business, conclusion and case studies). Part 1 of the book (pp.3–15) contains one chapter on international entrepreneurship of family firms: research process. Chapter 1 discusses the research process of the book, which combines two types of analysis. The first analysis Copyright © 2009 Inderscience Enterprises Ltd.

Book Review

489

type is a review of the literature of internationalisation and family business. The second analysis type is a historical sample of multinational family firms. The introduction part of the book is well written and structured, which makes the book easy to read and digest. Part 2 of the book (pp.15–97) includes three chapters. Chapter 2 (pp.15–42) examines what a family business is. The authors state that family business “within it, economic and organisational aspects are combined with feelings and relationships that exist between members of the family”. Indeed, it is the dynamics of a family that can make a business successful or fail. The authors highlight that the majority of business in any economy are family operated. Table 2.2 on page 23 states the percentage of family business, percentage of Gross National Product they contain and percentage of employment family business has in a number of different countries around the world. The chapter also includes an interesting section on the uniqueness of the family business. Chapter 3 (pp.42–73) is on globalisation and growth strategies for family businesses. The authors discuss the concept of globalisation and its impact on small- and medium-sized enterprises. Box 3.1 on page 58 provides useful examples of medium-sized family global leaders like Baader, Chupa Chups and Corticeira Amorim Industria. Chapter 4 (pp.73–97) is the last chapter in Part 2 of the book and discusses international family businesses: literature review and proposal. Table 4.1 on page 76 states the key research on the internationalisation of the family business from 1991 to 2005 by author, title and journal. A discussion on the bibliometric analysis of the articles provides very useful information about the distribution of references by articles. Part 3 of the book (pp.97–215) contains five chapters. Chapter 5 (pp.97–123) in on environmental influences. Box 5.1 on page 100 provides a great example of a Finnish family business. The box describes how the Myrlykoski corporation has globalised. Chapter 6 (pp.123–139) is on international entrepreneurship at the founder stage: characteristics of the founder-owner. The chapter discusses how managers traits affect the internationalisation process, which is essential in family businesses. Box 6.1 on page 128 provides a great discussion on Amancio Ortega who is the richest man in Spain and the creator of the ZARA empire. Chapter 7 (pp.139–167) discusses the succession process, which can be a contentious issue in family businesses. Table 7.2 on page 146 provides a useful depiction of family-owned business succession. Chapter 8 (pp.167–193) continues to examine succession issues by discussing a number of issues that are important in succession planning. For example, the authors discuss attitude and managerial style of the predecessors. Chapter 9 (pp.193–215) discusses other resources that contribute to international entrepreneurship in family business. The resources discussed include finances and managerial. Box 9.1 on page 201 discusses the interesting example of Chopard, which was the result of an acquisition by a German firm of a Swiss firm. Part 4 (pp.215–295) of the book includes three chapters. Chapter 10 (pp.215–235) discusses dimensions of family business internationalisation. Box 10.1 on page 223 discusses the growth and development of Koch Industries, which is the largest private firm in North America. Chapter 11 (pp.235–287) examines seven family multinational histories. It is one of the longest chapters but definitely worth reading. The case studies in this chapter are very well written and discuss in detail the developments and history of the firms involved. Chapter 12 (pp.287–295) is the conclusion chapter and pulls together well all the ideas discussed in previous chapters but also suggests future research directions. Overall, all the information and statistics included in the book are current and well-researched. The authors have done a tremendous job of pulling together all the information on family business in the global context.

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CONTENTS, KEYWORDS AND AUTHOR INDEXES FOR VOLUME 7

Contents Index

Volume 7, 2009

Issue No. 1 1

A study of enterprise in Rankin Inlet, Nunavut: where subsistence self-employment meets formal entrepreneurship Aldene Meis Mason, Leo Paul Dana and Robert Brent Anderson

24

The profitable new Japanese entrepreneurs: the minor role of information technology Tatsuyoshi Masuda

59

The contribution of entrepreneurship to society Hans Ruediger Kaufmann

74

Strategic decision making in small firms: a taxonomy of small business owners Petra Gibcus, Patrick A.M. Vermeulen and Jeroen P.J. de Jong

92

Learning mode of small business owners in Belgium Annick Willem and Herman Van den Broeck

107

An exploratory study of the characteristics affecting the success of SMEs in Pakistan M. Khurrum S. Bhutta, Jamshad H. Khan, Adnan Omar and Usman Asad

123

Exploring firm emergence: initially conditioned or actively created? Erno T. Tornikoski and Vesa Puhakka

139

The strategic management competence of small and medium-sized growth firms Marko Kohtamäki, Erno Tornikoski and Elina Varamäki

Contents Index Issue No. 2 SPECIAL ISSUE: ENTREPRENEURSHIP AND THE REGION Guest Editors: Professor Michael Dowling, Professor Jürgen Schmude, Associate Professor Frank Lasch and Professor Frédéric Le Roy 151

Editorial Michael Dowling, Jürgen Schmude, Frank Lasch and Frédéric Le Roy

155

IECER Conference – five years of entrepreneurship research: topics and trends Jürgen Schmude, Stefan Heumann, Frank Lasch and Frédéric Le Roy

175

Geographical environments for entrepreneurship Edward J. Malecki

191

Mapping entrepreneurial activity and entrepreneurial attitudes in European regions Niels Bosma and Veronique Schutjens

214

Innovative milieu, micro firms and local development in Barcelona Josep Lladós, Mireia Fernández-Ardèvol and Jordi Vilaseca

232

Social capital: an asset or a liability to entrepreneurial activity? Lars Rønning

Issue No. 3 SPECIAL ISSUE: HIGH-TECH ENTREPRENEURSHIP Guest Editors: Associate Professor Frank Lasch, Professor Frédéric Le Roy, Professor Michael Dowling and Professor Jürgen Schmude 253

Editorial Frank Lasch, Frédéric Le Roy, Michael Dowling and Jürgen Schmude

258

Entrepreneurship in emerging high-tech industries: ICT entrepreneurs between experts and kamikazes Frank Robert, Pierre Marquès, Frank Lasch and Frédéric Le Roy

284

How are the conditions for high-tech start-ups in Germany? Romy Voß and Christoph Müller

491

492

Contents Index

312

The locational factors and performance of the high-tech startups in China Utz Dornberger and Xiuhua Zeng

324

Entrepreneurship and ICT: a comparative analysis between Germany and Portugal João Leitão and João Ferreira

347

The impact of regional development policies on biotechnology firm creation: a comparative analysis of France, Germany and the UK Călin Gurău and Alexander Groh

367

Of acting principals and principal agents: goal incongruence in the venture capitalist-entrepreneur relationship Esben Christensen, Robert Wuebker and Rolf Wüstenhagen

Issue No. 4 SPECIAL ISSUE: ENTREPRENEURSHIP AND INNOVATION Guest Editor: Professor Vanessa Ratten 389

Editorial Vanessa Ratten

391

Cooperation in innovation practices among firms in Portugal: do external partners stimulate innovative advances? Maria José Silva and João Leitão

404

Dynamic capabilities, change and innovation in Greek SMEs: a preliminary study Apostolos Rafailidis and Giannis Tselekidis

420

Entrepreneurship and innovation within creative industries: a case study on the Finnish games industry Mirva Peltoniemi

431

Partnerships and innovative patterns in small and medium enterprises Elena Cefis, Mihaela Ghita and Anna Sabidussi

446

Strategy and innovation: making the right strategic decision and developing the right innovative capabilities Lawrence J. Loughnane

Contents Index

493

457

Entrepreneurs and branding in an environment of mass customisation and open innovation Khaled Hamid

466

A comparison of spectators’ and franchise staffs’ perceptions on the effectiveness of the marketing techniques adopted by the Super Basketball League in Taiwan Steve Chen, Ronald Dick, Chie-Der Dongfang and Pi-Yun Teng

478

Building a sense of community through sport programming and special events: the role of sport marketing in contributing to social capital Eric C. Schwarz

Book Review 488

International Entrepreneurship in Family Businesses by J.C. Casillas, F.J. Acedo and A.M. Moreno Vanessa Ratten

494

Keywords Index

Volume 7, 2009

Indexing is based on the keywords and phrases, title and abstract on the first page of each paper. Page references are to the first page of the paper or report. A active behaviours agency theory angels

123 367 175

B Barcelona basketball beadwork Belgium biotech firm creation brands bureaucracy business environment business practice business success

214 466 1 92 347 457 284 284 446 214

C caribou case study change cleantech cognitive ability Cointegrated Vector Autoregressive Model commonalities conditions cooperation creative industries creativity CVAR

1 367 404 367 74 324 404 284 431 420 446 324

D decision makers definition description of entrepreneurs dynamic capabilities

74 59 258 404

E economic survey education energy technology entrepreneurial activity entrepreneurial attitudes entrepreneurial innovation capability

107 59 367 191, 232 191 391

Keywords Index

495

entrepreneurs 457 entrepreneurship 1, 155, 175, 191, 214, 258, 284, 324, 367, 420, 446 entrepreneurship and society 59 entrepreneurship research 155 environment 155 Europe 155 European regions 191 evolutionary theory 420 external support agency 24 F factors farm households firm emergence focus groups France

404 232 123 92 258

G games industry Germany goal incongruence Greece growth

420 284 367 404 139

H high tech high-tech high-tech startups home office

258 284 312 24

I ICT 214 ICTs 258, 324 identity 59 IECER Conference 155 Information and Communication Technologies 258, 324 Information and Communications Technology 214 information asymmetry 367 initial conditions 123 innovation 214, 391, 404, 420, 431, 446, 457 institutional support 284 interdisciplinary research 155 internet use 24 J Japan K Kivalliq Kivalliq Arctic Foods

24 1 1

496

Keywords Index

L learning capability learning gaps learning mode learning process learning support local environments locational factors

92 92 92 92 92 175 312

M managerial ability marketing marketing techniques Mass Customisation milieu morale of employee multidisciplinary paradigms

24 457 466 457 214 24 59

N network networks new entrepreneur new firm formation new firm’s location Nunavut

214 175, 391 24 175 312 1

P Pakistan partnership Portugal PR China previous occupational status previous work experiences probit promotional strategies

107 431 391 312 24 24 431 466

Q quantitative study

139

R Rankin Inlet reflective learning regional policies research and development research paper research topics and trends

1 92 347 284 92 155

S search self-employment ‘sense of community’

420 1 478

Keywords Index small and medium enterprises small- and medium-sized enterprises small business management small business owners SME SMEs social capital social sciences special events spinoffs spin-offs sport marketing sport programming start-up firm start-ups strategic decision making strategic management competence strategy subsistence success characteristics

497 107 74, 431 139 92 431 74, 107, 404 232, 478 478 478 175 284 478 478 367 284 74 139 446 1 107

T talented employee taxonomy technology ticket sales transnational comparisons types of entrepreneurs typology of entrepreneurs

24 74 457 466 347 258 258

U universities urbanisation

175 191

V VC venture capital

367 175, 367

498

Author Index Anderson, R.B. 1 Asad, U. 107 Bhutta, M.K.S. 107 Bosma, N. 191 Cefis, E. 431 Chen, S. 466 Christensen, E. 367 Dana, L.P. 1 De Jong, J.P.J. 74 Dick, R. 466 Dongfang, C-D. 466 Dornberger, U. 312 Dowling, M. 151, 253 Fernández-Ardèvol, M. 214 Ferreira, J. 324 Ghita, M. 431 Gibcus, P. 74 Groh, A. 347 Gurău, C. 347 Hamid, K. 457 Heumann, S. 155 Kaufmann, H.R. 59 Khan, J.H. 107 Kohtamäki, M. 139 Lasch, F. 151, 155, 253, 258 Le Roy, F. 151, 155, 253, 258 Leitão, J. 324, 391 Lladós, J. 214 Loughnane, L.J. 446 Malecki, E.J. 175

Volume 2, 2006 Marquès, P. 258 Mason, A.M. 1 Masuda, T. 24 Müller, C. 284 Omar, A. 107 Peltoniemi, M. 420 Puhakka, V. 123 Rafailidis, A. 404 Ratten, V. 389, 488 Robert, F. 258 Rønning, L. 232 Sabidussi, A. 431 Schmude, J. 151, 155, 253 Schutjens, V. 191 Schwarz, E.C. 478 Silva, M.J. 391 Teng, P-Y. 466 Tornikoski, E. 139 Tornikoski, E.T. 123 Tselekidis, G. 404 Van den Broeck, H. 92 Varamäki, E. 139 Vermeulen, P.A.M. 74 Vilaseca, J. 214 Voß, R. 284 Willem, A. 92 Wuebker, R. 367 Wüstenhagen, R. 367 Zeng, X. 312